Gotrade News - The global bond selloff deepened on Wednesday, September 23, after hotter-than-expected September flash PMIs pushed the US 10-year Treasury yield up 13 basis points to 5.10%, its highest level since June 2007, according to Wolf Street. The move lifted bets on another Federal Reserve rate hike in October and put renewed pressure on rate-sensitive assets.
The trigger was a set of business surveys showing economies running hot while input costs climb. With fuel and transport costs climbing and price gauges elevated in the US, the eurozone and Japan, investors are pricing central banks to keep tightening rather than pause.
10-Year Treasury Yield Hits 5.10%, Highest Since 2007
The selloff hit the whole US curve. Per Wolf Street, the 2-year yield rose 13 basis points to 4.91%, the highest since May 2024, while the 30-year yield climbed 9 basis points to 5.39%, the highest since July 2004.
US Treasury | Yield (Sept 23) | Daily change | Highest since |
|---|
2-year | 4.91% | +13 bp | May 2024 |
10-year | 5.10% | +13 bp | June 2007 |
30-year | 5.39% | +9 bp | July 2004 |
Demand at Treasury auctions also showed strain. As reported by ActionForex, the $70 billion 5-year note auction cleared at 5.033%, and indirect bidders took 54% of the sale against an average of roughly 65%. A day earlier, the 2-year auction had cleared at 4.787%, the highest in two years, according to Wolf Street.
According to S&P Global's flash survey, as reported by InvestingLive, the US services PMI rose to 58.7 against a 56.0 forecast, the manufacturing PMI reached 57.0 against 53.6 expected, and the composite PMI came in at 58.4, beating a 56.0 consensus. Input cost inflation hit its highest since October 2022, employment growth was the strongest since June 2022, and supplier delays were the most widespread since July 2022.
A composite reading of 58.4 is far above the 50 line that separates expansion from contraction. Per ActionForex, it is a 62-month high, up from 56.0 in August.
"US business continues to boom, with output growing at the fastest rate for over five years ... Firms' input costs have meanwhile jumped in September at the steepest rate for four years, with fuel and transport costs spiking higher." Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, via InvestingLive
That mix of strong demand and rising costs is what bond traders fear most. Wolf Street cited S&P Global's warning that companies are developing more pricing power, which could add upward pressure on selling prices and inflation in the coming months.
October Fed Rate Hike Odds Climb to Nearly 70%
Markets now lean toward a follow-up to the Fed's September rate hike. According to ActionForex, the implied probability of an October hike rose to 69.7%, up from 55.4% a day earlier, 48.7% a week ago and just 8.8% a month ago.
Fed commentary has leaned hawkish as well. Per ActionForex, the Federal Reserve's Michael Barr said policymakers had been "out of position" before the September move, and that in his base case "further policy adjustments are likely to be needed to ensure inflation comes down to target." Brent crude was up 3.86% at $103.08, per the same report, keeping the inflation risk front and center.
Eurozone PMI Hits 53.1 as ECB Hike Bets Rise
The pressure is not confined to the US. As reported by InvestingLive, the eurozone flash composite PMI rose to 53.1 from 52.0 in August, beating the 51.7 forecast, while services climbed to 53.0 from 51.6. Input costs and output prices both rose at their sharpest rates in four months.
Market pricing for a 25 basis point European Central Bank hike in October edged up to about 48% from roughly 45% before the release, per the same report. Germany posted a third straight month of expansion and France returned to growth for the first time in 10 months.
Japan Composite PMI Eases to 52.5 but Price Pressures Stay Elevated
Japan offered a slightly softer growth signal but no relief on inflation. According to S&P Global's September flash PMI report, published via Seeking Alpha, the composite output index fell from 53.5 in August to 52.5, a level still broadly consistent with GDP rising at a quarterly rate of about 0.5%. Manufacturing remained the main engine, while services growth stayed weaker than before the war in the Middle East, partly because of falling exports.
Seeking Alpha's summary of the report noted that price increases for goods and services remain near record highs, which it said raises the likelihood of further Bank of Japan rate hikes. That would build on the BOJ's recent rate hike and add another source of upward pressure on global yields.
What 5% Treasury Yields Mean for Bonds, Growth Stocks and Energy
Bond prices move inversely to yields, so long-duration Treasury funds such as the iShares 20+ Year Treasury Bond ETF (TLT) are among the most exposed when long-term rates climb. Higher yields also raise the discount rate applied to future earnings, a factor investors may consider when valuing growth-heavy funds such as the Invesco QQQ Trust (QQQ).
Energy is the other side of the story. Oil above $100 adds to inflation concerns that are contributing to higher yields. Investors are also tracking fuel costs highlighted in PMI surveys, alongside energy companies such as Exxon Mobil (XOM), whose business is exposed to movements in oil and fuel prices.
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