US yields jump to multi-year highs on Fed tightening bets, bond market turmoil

US Treasury yields surged on Wednesday, with the revenue of the 10- and 30-year notes breaking past the key 5% level.
A mix of strong US data, Fed tightening expectatio, and low demand for US Treasuries is boosting yields this week.
These levels suggest higher borrowing costs for families and businesses, which would threaten economic growth.

Guillermo Alcala FXStreet

US Treasury yields stretched to their highest levels in years on Wednesday, fuelled by a mix of rising expectations of further monetary tightening by the US Federal Reserve (Fed), following upbeat US business activity data and a poor US Treasury bond auction. These levels are consistent with higher borrowing costs in mortgages, credit cards or corporate loans, ultimately posing a significant strain on economic growth. The market has performed a risk-off reaction, weighing on stocks and lifting the US Dollar (USD).

The yield on the 30-year Treasury bond trades at 5.444% on Thursday, its highest level in 22 years, and the benchmark 10-year has reached 5.148% for the first time since 2007 after a whopping 20-basis-point jump from Wednesday’s lows. The 2-year yield, which is closely related to Fed monetary tightening expectations, rallied to two-year highs at 4.494%

Long-term securities have thus crossed the 5% level, considered a psychological threshold, which, apart from driving borrowing costs to unaffordable levels, might prompt investors to move away from stock markets to risk-free government debt.

Strong US data and weak demand for US Treasuries boosted yields

US yields surged on Wednesday as preliminary S&P Global Purchasing Managers' Index (PMI) data showed strong business activity. These figures, coupled with higher wages and rising costs amid high energy prices, boosted expectations that the US central bank will have to tighten its monetary policy soon to keep the economy from overheating.

Fed Governor Michael Barr confirmed those views later on Wednesday, affirming that “further rate hikes are likely needed to ensure timely return to the 2% inflation.”

Beyond that, a five-year US Treasury auction drew shockingly poor demand, which, according to MUFG analysts, highlights investor unease around the US rates outlook.

Against this backdrop, MUFG warns that “FX [is] more vulnerable to a carry unwind given how well these trades have done in this incredible low FX vol environment.” In such a shakeout, MUFG expects “high yielders across EM would suffer most while the yen and Swiss franc would outperform,” as investors rotate out of riskier carry positions into traditional safe-haven currencies.

Economic Indicator

S&P Global Manufacturing PMI

The S&P Global Manufacturing Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US manufacturing sector. The data is derived from surveys of senior executives at private-sector companies from the manufacturing sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity in the manufacturing sector is generally declining, which is seen as bearish for USD.

Economic Indicator

S&P Global Services PMI

The S&P Global Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector. As the services sector dominates a large part of the economy, the Services PMI is an important indicator gauging the state of overall economic conditions. The data is derived from surveys of senior executives at private-sector companies from the services sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for USD.

AUD/USD turns lower toward 0.7000 after mixed Australian jobs data

AUD/USD is losing ground toward 0.7000 in the Asian session on Thursday, following the release of the Australian August jobs report, which showed that the Unemployment Rate rose to 4.6% versus 4.5% expected, while Employment Change beat estimates, arriving at 39.5K. Traders also remain unnerved ahead of the critical Trump-Xi meeting.

USD/JPY keeps the red near 158.00 as Japanese Yen firms up

USD/JPY retreats from three-week highs and holds losses near 158.00 in the Asian session on Thursday. Surging Japanese bond yields lift the Yen amid looming intervention risks, while the US Dollar preserves overnight gains to a two-month high amid hawkish Fed bets and elevated US bond yields.

Gold struggles near one-week low as traders await Trump-Xi meeting amid Fed hike bets

Gold sticks to a negative bias for the second straight day, trading below the $4,300 mark or a one-week low during the first half of the European session as traders await a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping. Expectations for a major announcement are low, though market players will look for any progress on rare earths, technology restrictions, and an extension of the current US-China truce.

Bitcoin slips to $84,000 on rate hike bets – Worldcoin, Pepe lead losses

Bitcoin (BTC) price trades below $84,000 on Thursday, extending losses after a 2% decline the previous day. The pullback aligns with renewed inflation and rate-hike concerns, as US composite and services PMIs rose to 58.4 and 58.7 in September. Worldcoin (WLD) and Pepe (PEPE) recorded double-digit losses over the last 24 hours, emerging as the worst performers.

SNB leaves interest rates unchanged at 0%

Swiss National Bank leaves its key policy rates unchanged at 0%, as expected by market particiapnts. The key highlights of SNB’s monetary policy assessment are as followed: Banks' sight deposits held at the SNB will be remunerated at the SNB policy rate up to a certain threshold. SNB sees 2026 inflation at 0.7% (previous forecast was for 0.6%). The main risk to the economic outlook for Switzerland stems from developments in the global economy.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.