10-Year Treasury Yield Jumps As Markets Bet On Two Fed Rate Hikes. Bessent Won't Fight It.

• S&P Global PMI jumped to 58.4 in September from 56, with employment reaching a four-year high of 55.4, indicating robust economic growth that justifies further Fed tightening
• Treasury maintained a $6 billion ceiling on long-term bond buybacks despite yields exceeding 5%, showing Bessent's unwillingness to manipulate markets against natural forces
• The S&P 500 fell only 0.7% despite the yield surge, remaining just 0.4% off its all-time high and up 13.4% year-to-date, suggesting limited market damage so far

Market Summary: Treasury Yields Surge on Strong Economic Data

Key Developments

The 10-year Treasury yield jumped 12 basis points to 5.09% on Wednesday, reaching a 19-year high after robust economic data fueled expectations for additional Federal Reserve rate hikes. Markets now price in 71% odds of a Fed rate hike on October 28, up from 55% the previous day, with 55% probability of a 50-basis-point increase by December 9.

Economic Indicators

The S&P Global purchasing managers' survey index for U.S. output surged to 58.4 in September from 56 in August, marking the fastest expansion since July 2021. The employment subindex jumped to a four-year high of 55.4 from 53.3. U.S. crude oil prices rebounded to approximately $92 per barrel, adding upward pressure on yields.

Treasury Policy

Treasury Secretary Scott Bessent maintained a $6 billion ceiling for buybacks of long-term Treasury bonds despite the yield surge, signaling unwillingness to fight market forces. The September 10 buyback only attracted $5.2 billion in bids, indicating Bessent's reluctance to artificially manipulate yields—a departure from earlier market expectations.

Market Impact

The S&P 500 declined 0.7% Wednesday afternoon but remains 13.4% higher year-to-date and just 0.4% below its August 13 all-time high. The Nasdaq composite fell 1.1% after reaching a record high in the prior session.

Broader Implications

The 10-year yield serves as a key benchmark for mortgage rates and equity valuations. While the move above 5% raises concerns about stock valuations, analysts note yields reached 6% in 1999 before the dot-com crash. Strong economic growth largely drives current yields, though $2 trillion federal deficits and AI infrastructure spending contribute to market uncertainty.