Treasury yields surged dramatically on Wednesday. The 10-year note rose more than 13 basis points, reaching 5.104%, the highest since July 2007. This marked the largest one-day increase in nearly 18 months, breaking the critical 5% threshold.
The 2-year Treasury note, a key indicator of Federal Reserve policy, climbed over 11 basis points to 4.889%, its highest point since May 2024. The 30-year Treasury yield also increased by more than 9 basis points, hitting 5.398%, a level last seen in June 2007. Traders are growing more convinced that additional rate hikes from the Federal Reserve may be imminent.
Market analysts, including Tony Miano from Wells Fargo Investment Institute, interpret this as a sign of a re-tightening cycle. Miano observed that the Fed's recent 25 basis point hike to a range of 3.75%–4% was its first since 2023, with another hike anticipated this year.
Unexpected spikes in purchasing managers' indexes (PMIs) have added to market anxiety. The services PMI jumped to 58.7 in September, the highest in nearly five years. The manufacturing PMI also increased, reaching 56.7, a peak not seen in four years. These indices, which track business activity across sectors, reflect a booming U. S. economy. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that this growth spurt is the largest since early 2015, excluding post-COVID-19 recovery periods.
Fed Governor Michael Barr's comments further pushed yields, suggesting more policy adjustments might be necessary to achieve inflation targets. Barr emphasized the importance of price stability for sustainable growth and maximum employment.
The likelihood of another quarter-point rate increase in October rose sharply. The CME Group's FedWatch tool indicated a jump to 66.4% from 55% the previous day. A month ago, those odds were below 10%.
The situation worsened with a disappointing Treasury Department auction of 5-year notes, ending with a yield of 5.033%, well above the six-auction average of 4.186%. Indirect bidders, such as global central banks, purchased only 54% of the auction, below the typical 65% average. Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, described the auction as poor, citing the challenge of finding buyers in a weak market.
Oil prices have also influenced rising yields. Brent futures rose 3.86% to $103.08 per barrel, while U. S. crude increased 1.81% to $92.16 per barrel. Rising oil prices have raised concerns about ongoing inflation and potential further Fed rate hikes.
