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U.S. 30 year yield hits 2004-high as bond rout deepens
A historic sell-off in U.S. Treasuries eased slightly on Thursday, with benchmark yields touching levels not seen since before the 2008 global financial crisis as surging business activity, elevated energy prices, and hawkish Federal Reserve signals combined to ignite fresh inflation fears.
The yield on the benchmark 10-year U.S. Treasury note eased to 5.104%, having reached its highest level since July 2007. The move comes directly on Wednesday’s dramatic rout, which marked the largest single-day yield jump since April of last year and the sharpest increase since "Liberation Day" in 2025.
Meanwhile, the 30-year Treasury yield surged to 5.443% - its highest level since 2004.
At the policy-sensitive short end, the two-year Treasury yield was largely at 4.864% - hovering at its highest level since May 2024 - after posting its sharpest single-day yield increase since March 2026 during the previous session.
Raging PMIs
Flash Purchasing Managers’ Index (PMI) survey data revealed that U.S. business activity accelerated to a more than five-year high in September, driven by a surge in new orders. Far from reassuring investors, the hot print signaled that economic momentum remains dangerously resilient against monetary tightening.
Supply digestion hit a major roadblock on Wednesday when a scheduled auction of five-year Treasury notes met exceptionally weak demand, forcing primary dealers to absorb a large share of the issuance and dragging secondary market prices lower.
A sharp spike in crude oil futures added fuel to the fire after Iranian President Masoud Pezeshkian vowed that Tehran would "never surrender," directly countering threats from U.S. President Donald Trump at the UN General Assembly to "annihilate" the Islamic Republic.
The escalation cast doubt on a quick reopening of the Strait of Hormuz, threatening a prolonged cost-push shock.
"We expected the 10-year bond yield to remain in the 4.00%-5.00% range this year. We aren’t giving up on that range just yet; it mirrors the range during the five years before the Great Financial Crisis. Nevertheless, the risks now clearly point to more upside in yields," Yardeni Research said.
Fed hawkishness mounts
In response to the economic data and energy headwinds, Federal Reserve officials signaled that the central bank’s tightening campaign is far from over.
Fed Governor Michael Barr stated on Wednesday that policymakers will likely need to deliver further interest rate increases to bring inflation back to target. Concurrently, Chicago Fed President Austan Goolsbee warned that central bankers may need to treat the ongoing energy shock as a source of persistent inflation rather than a temporary supply blip.
Following the hawkish barrage, CME FedWatch data shows traders are now discounting a 70% probability of another quarter-point rate hike at the Fed’s October meeting, up sharply from a 50% prior to Wednesday’s PMI release.
The heavy selling across the curve persisted even after the U.S. Treasury announced measures to support market liquidity through its secondary market buyback program.
While the Treasury indicated it would purchase up to $6 billion in 20-year and 30-year bonds during operations on Thursday - marking its second long-term buyback operation this month - allocators note that official demand has so far been overwhelmed by the sheer volume of global duration liquidation.
"A relief rally in bond prices would probably require a resolution of the war in the Middle East that would lower oil prices. Another possibility is that US Treasury Secretary Scott Bessent will act to bring bond yields down by buying back more Treasury bonds and issuing more Treasury bills," Yardeni Research added.
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