A historic Treasury selloff pushed the 10-year yield to its highest level since July 2007 on Thursday, as hot PMI data, a weak five-year note auction, and a Middle East oil scare combined with hawkish Fed signals. German bund yields climbed in tandem, strengthening the case for further ECB hikes.
The 10-year U.S. Treasury yield rose to 5.142% on Thursday, its highest level since July 2007. The move builds on Wednesday's rout, which marked the largest single-day yield jump since April of last year and the sharpest increase since "Liberation Day" in 2025.
Selling was just as intense further out on the curve. The 30-year Treasury yield surged to 5.443%, its highest level since 2004. The 2-year yield climbed to 4.908%, the highest since May 2024.
Hot PMI and a failed auction
Flash PMI data showed U.S. business activity accelerating to a more than five-year high in September, driven by a surge in new orders. Rather than reassuring investors, the hot print signaled that economic momentum remains dangerously resilient against monetary tightening.
The picture worsened on Wednesday when a scheduled auction of five-year Treasury notes met exceptionally weak demand, forcing primary dealers to absorb a large share of the issuance and dragging secondary market prices lower. Oil added further pressure after Iranian President Masoud Pezeshkian vowed Tehran would "never surrender," countering threats from President Donald Trump at the UN General Assembly to "annihilate" the country, a standoff that cast doubt on a quick reopening of the Strait of Hormuz.
Fed officials signal more hikes ahead
Fed Governor Michael Barr said policymakers will likely need to deliver further interest rate increases to bring inflation back to target. Chicago Fed President Austan Goolsbee warned officials may need to treat the energy shock as a persistent inflation source rather than a temporary blip. Traders responded by pricing a 70% probability of another quarter-point rate hike at the Fed's October meeting, up from 50% before Wednesday's PMI release.
The selling persisted even after the Treasury said it would purchase up to $6 billion in 20-year and 30-year bonds on Thursday, its second long-term buyback operation this month. According to Yardeni Research: "the risks now clearly point to more upside in yields."
Euro yields follow higher
Germany's 10-year Bund yield rose to 3.549%, its largest single-day jump in more than two months. The 2-year Schatz yield advanced to 3.303%, its highest since September 2023. Eurozone PMI data showed business activity accelerating at its fastest pace in over three years, defying forecasts for a stagflationary slowdown and strengthening the case for additional ECB rate hikes.
Source: Investing.com
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