Thirty-year Treasury yields touched 5.70% on October 7, their highest since 2002, while 10-year yields pushed near 5.32%. The bond rout is also hitting Europe, where France's borrowing costs have jumped and investors are rotating into safer German debt, raising the hurdle rate equity markets must clear.
Treasury yields keep climbing, and the move is not slowing down. The 30-year yield touched 5.70% on October 7, its highest level since 2002. The 10-year yield pushed up to around 5.32%, closing in on levels not seen in over two decades.
Thirty-year yields have powered through the 5.40% area since the final week of September and are continuing to stretch higher. So long as investors keep demanding higher yields to own long-term government debt, borrowing costs can stay elevated even without another Fed rate hike.
Pressure spreads to gold and stocks
The rout is rippling across other markets. Gold is down 1% to $4,117 after failing to push through $4,200 last week. Stocks have shown resilience so far, but every step higher in yields raises the hurdle rate equities must clear.
Europe's bond market splits into winners and losers
The selloff has also rocked Europe's bond market, and traders are turning more discerning. According to Reuters: "We've seen bond vigilantes come out in force", Man Group Chief Market Strategist Kristina Hooper said, describing investors punishing countries they see as fiscally undisciplined.
France sits at the center of the storm. Its 10-year bond yield jumped 70 basis points in September, hitting its highest level since 2002, as investors worry about the country's budget deficit and the 2027 presidential election. The spread between French and German 10-year yields hit almost 160 basis points last week, its highest since 2012, though it retreated somewhat before widening again this week.
Germany, by contrast, is back in favor as Europe's safe haven. The German 10-year Bund yield fell 17 basis points last week even as France's yield jumped 13 basis points, and Dutch, Swiss and Swedish yields also fell as investors sought safety.
Why the spread matters beyond bonds
Widening sovereign yield spreads can flag stress before it shows up elsewhere. If a spread like the one between France and Germany keeps growing, the pressure can spill into currencies, stocks and eventually central bank policy, since local banks holding government bonds and equities tied to financing conditions can both come under strain.
The bigger question now is how high yields need to go before something breaks, with yields pushing above 5% across much of the curve and the 30-year edging closer to levels markets are starting to discuss seriously.
Sources: Investinglive, Investing.com, Investinglive
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