Government bond markets swung sharply on Thursday, October 1, as the yield on the benchmark 10-year US Treasury briefly reached about 5.34%, its highest level since 2002. Reuters and the Associated Press reported that the surge raised concern about borrowing costs across major economies and unsettled stock markets, particularly in Europe. The US yield subsequently retreated, allowing Wall Street shares to recover by the close.
The move followed a steep rise in yields during the July-to-September quarter. Reuters, citing market data, said the 10-year Treasury yield had climbed almost 0.9 percentage points over that period, its largest quarterly increase this century. Bond yields rise when bond prices fall. The 10-year rate is closely watched because it influences the pricing of other loans and investments around the world.
The selling extended beyond the United States. Reuters reported that French 10-year yields reached levels last seen in 2002, while British 30-year borrowing costs touched 6% for the first time since 1998. According to AP, stock indexes fell 1.7% in London, 1.6% in Paris and 1% in Frankfurt. French bond yields also swung widely during the session, showing how rapidly financing conditions were changing.
Investors weighed persistent inflation risks, higher energy prices and heavy government borrowing. A September survey released Thursday by the Institute for Supply Management showed US factory activity expanding while its prices index rose to 77.9 from 71.1 in August. AP said Brent crude climbed 4.4% to $102.31 a barrel. Those developments added to uncertainty about how long interest rates may remain elevated.
US shares finished higher after yields pulled back. AP reported that the 10-year Treasury yield ended near 5.23%, down from 5.29% late Wednesday, while the S&P 500 gained 0.2%. Technology shares helped offset pressure from higher rates. The mixed finish underscored that the bond selloff did not translate into uniform stock losses, even as European markets ended sharply lower.
Higher government yields can increase financing costs for households, businesses and public budgets. Freddie Mac said Thursday that the average US 30-year mortgage rate had reached 7.28%, up from 7.03% a week earlier, although mortgage rates reflect several factors besides Treasury yields. Investors are due to examine Friday’s US employment report for further evidence about growth and the outlook for interest rates.
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