10-Year Treasury Yield Hits 24-Year High as Global Bond Rout Deepens

The yield on the 10-year U.S. Treasury note climbed to 5.342% on Thursday, its highest level in 24 years, as a brutal bond selloff accelerated into the start of the fourth quarter.

A milestone two decades in the making

The 10-year peaked at 5.342% on Thursday, according to Tradeweb data reported by Reuters and Dow Jones Newswires - a print that clears the 2007 high and stands as the loftiest level since early 2002. It capped the third quarter as the steepest quarterly yield climb the benchmark has recorded this century.

The record has been built in stages. On Wednesday, the 10-year bid yield pushed past its 2007 intraday peak of 5.303% to touch 5.304%, then ended the session at 5.292%, according to Tradeweb data reported by the Journal. TickerGrove covered the yield's crossing of 5% on Sept. 23; eight days later the benchmark sits 34 basis points higher. The 30-year yield climbed to 5.683% on Thursday, also a 24-year high.

Why softer inflation was not enough

Wednesday's August PCE data should have been a gift for bond buyers: the Fed's preferred gauge rose 3.4% year over year, well below the 3.7% economists expected, while core PCE rose 3.0% against 3.3% expected and down from 3.3% the prior month. Relief lasted a few hours. An upward revision to second-quarter GDP growth reminded markets that the economy keeps absorbing borrowing costs that were supposed to slow it.

The drivers now stretch well past the Fed's rate path. Investors cite the federal deficit and a heavy Treasury supply calendar, sticky inflation fed by elevated energy prices since the Iran conflict began in March, a run of resilient economic data, and the term premium demanded for holding long-dated paper. JoAnne Bianco, senior investment strategist at BondBloxx, put it plainly in a note: the 'higher for longer' rate environment has become 'much higher for a lot longer.'

Money markets now price roughly a 36% chance of a Fed rate increase at the October meeting, little changed after the week's data, according to LSEG.

The rout goes global

Europe felt the contagion on Thursday. The 10-year German Bund yield rose to 3.633%, near its 3.653% print from earlier in the week, the highest since mid-2009. The spread between French and German 10-year yields widened to 132 basis points, a 14-year high, as budget politics shook confidence ahead of Thursday's presentation of France's 2027 Budget Act, which targets a public deficit of 5.0% of GDP.

'Bonds remain choppy and OAT spread dynamics are concerning,' Erik Liem, rates strategist at Commerzbank, told Dow Jones Newswires, adding that 'the French budget proposal looks set to add some fundamental spice to the current dynamics.'

Asia tracked the move too. Japan's 10-year yield rose to 3.101% as a strong business survey reinforced expectations of more Bank of Japan tightening, while Australia's 10-year added 5.3 basis points to 5.397% and New Zealand's added 5.8 basis points to 5.104%.

Warning and opportunity at five percent

Long-dated yields above 5% cut both ways. 'Existing bondholders have absorbed painful price declines, but new capital can now lock in yields unavailable for much of the past two decades,' said Mark Malek, chief investment officer at Siebert Financial.

Stocks have wobbled but not buckled. On Wednesday, the Dow surrendered a 600-point intraday rally to close down 450, while the Nasdaq finished higher; September was the S&P 500's worst month since June, according to market data compiled by CNBC's trading desk. The 60-40 stock-and-bond mix, meanwhile, is doing what it is supposed to for the first time in years.

What could stop the bleeding

Friday's September jobs report is the next swing factor. Employment data due Friday are likely to swing yields, with markets still weighing the odds of an October rate increase. A weaker print could revive the bid; a hot one would deepen the rout.

Beyond that, the watch list is political: France's budget presentation on Thursday, the U.S. Treasury's supply calendar, and whether October repeats the pattern of brutal Septembers giving way to even darker Octobers for bonds.