The 10-year Treasury yield jumped to its highest level since 2007 on Wednesday after a strong manufacturing report fueled bets on another Federal Reserve rate increase. The S&P 500 and Nasdaq pulled back from recent highs as traders priced in a 73% chance of an October hike.
The 10-year Treasury yield jumped 0.17 percentage points to 5.12% in Wednesday afternoon trading, its highest level since 2007. The move pushed the S&P 500 down 0.8% in afternoon trading, with the tech-heavy Nasdaq 100 falling 1.1% from Tuesday's record close.
Strong data drives the selloff
S&P Global's September Purchasing Managers' Index report showed US business output accelerated at the fastest pace in five years this month. According to the Financial Times: "US business continues to boom," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Two-year Treasury yields, which are sensitive to monetary-policy expectations, climbed 0.19 percentage points to 4.93%. Both moves were the largest since the tariff announcement of April 2025, and the Atlanta Fed's GDPNow tracker now forecasts the US economy growing at an annualised 5.1% pace in the third quarter, which would be the fastest since the post-Covid recovery.
Fed officials strike a hawkish tone
Futures markets are now pricing in a 73% chance of a further rate increase in late October, days before the November midterm elections. Fed governor Michael Barr added to the hawkish sentiment, saying further policy adjustments are likely to be needed to bring inflation down to target. The central bank raised rates last week for the first time in more than three years.
Boston Fed president Susan Collins struck a similarly hawkish tone on Tuesday, warning there is an increased likelihood that inflation stays notably above the Fed's 2% target. Elsewhere, the Dow Jones Industrial Average dropped 0.68% and the Nasdaq Composite fell 1.13%, according to MarketWatch.
Weak auction and oil rally add pressure
A $70bn auction of US five-year notes sold at a yield of 5.033%, roughly 0.03 percentage points above where the debt traded before the sale, adding to the rate hike selling pressure. The Treasury said it will buy up to $6bn of 20- to 30-year bonds on Thursday, extending a buyback scheme that has not yet provided lasting relief to borrowing costs.
Brent crude also rallied 3.4% to $102.58 a barrel after Iran's President Masoud Pezeshkian said Tehran was prepared to negotiate with Washington but would not accept bullying from President Trump, who a day earlier threatened to annihilate the Islamic republic.
Sources: Financial Times, MarketWatch (snippet-based)
Trading involves risk.
Risk Disclaimer
