Treasury yields continue to rise after 10-year hit 19-year high as investors ramp-up rate hike bets

• The 10-year Treasury yield reached 5.124% after hitting 5.104% on Wednesday, its highest level since 2004, while the 30-year yield rose to 5.42%
• S&P Global's services PMI jumped to 58.7 in September, the highest in almost five years, while manufacturing PMI reached 56.7, reinforcing expectations of economic resilience
• Market participants now see a 70% probability of another Fed rate hike at the October FOMC meeting, up significantly as strong economic data suggests the Fed can continue tightening to combat inflation

Summary

Key Developments:

Treasury yields continued their upward trajectory Thursday, with the benchmark 10-year yield rising to 5.124% after hitting a 19-year high of 5.104% the previous day (up 13 basis points). The 30-year bond yield climbed to 5.42%, while global bond yields also surged, with Japanese 10-year yields reaching 3.055%—the highest since August 1996.

Primary Drivers:

The selloff was triggered by three main factors:

1. Strong Economic Data: S&P Global's September PMI showed services activity jumped to 58.7 (highest in nearly five years) and manufacturing rose to 56.7 (highest in over four years)
2. Hawkish Fed Commentary: Fed Governor Michael Barr indicated "further policy adjustments" are likely needed to control inflation
3. Rising Oil Prices: Brent crude futures traded at $103.66/barrel, with WTU at $92.68/barrel

Market Implications:

Traders now price in a 70% probability of another Federal Reserve rate hike at the October FOMC meeting. Deutsche Bank analysts noted the combination of resilient economic growth and elevated oil prices supports the narrative for continued monetary tightening.

The global bond selloff extended beyond U.S. Treasuries, affecting U.K. Gilts and German Bunds, signaling broader concerns about persistent inflation and central bank policy tightening worldwide.

Upcoming Catalysts:

Investors await Thursday's weekly jobless claims and August new home sales data for additional insights into U.S. economic strength, which could further influence rate hike expectations.