Selling pressure returned to Treasuries, lifting long-end yields to heights not seen in two decades as the bond slump kept grinding on. The benchmark 10-year reached 5.34% and the 30-year touched 5.7%, each up at least 7 basis points and both at their highest since 2002. Shorter-dated notes rose more modestly by roughly 2 to 4 basis points.
The market is not ready to call a peak. Since mid-August, yields have climbed as growth keeps humming, helped by big spending on AI infrastructure, and inflation stays sticky enough to keep the option of additional Federal Reserve hikes alive. September's ISM services report showed the sector expanding at a slower clip, but its prices paid index came in at 74, the highest since July 2022 and above forecasts.
A separate services reading indicated cost pressures accelerated at the fastest pace in more than four years. Vail Hartman of BMO Capital Markets wrote that recent conditions suggest inflation is intensifying and nominal growth remains robust, which has kept the tone toward bonds bearish in recent weeks.
Long-dated yields at multi-decade highs reprice nearly every asset at once. Market Briefs reads the bond market free every morning.
Interest-rate swaps put the odds of an October Fed hike at around 25%, with markets expecting a full quarter-point increase by the December meeting. On the long end, BMO Asset Management's Earl Davis, who leads fixed income, said on Bloomberg TV that a 30-year yield above 6% is "inevitable" and probably coming this month, adding that today's volatility is creating a self-reinforcing rise in rates. The long bond has not been above 6% since 2000.
Investor appetite for longer maturities gets a near-term check with this week's 10- and 30-year auctions. The Treasury's coupon calendar kicks off on Tuesday via a $58 billion auction of 3-year notes.
Mortgages, stocks, and corporate debt all take their cue from this curve. Get the free Market Briefs daily newsletter and watch it.
