As international oil prices surge, U.S. Treasury yields have reached their highest levels in nearly 20 years, prompting a global sell-off in government bonds.
On September 24, U.S. Treasury yields for 30-year bonds rose to 5.501%, the highest since June 2004, while 10-year yields climbed to 5.223%, marking the highest level since June 2007, according to reports from CNBC and CNN.
The spike in U.S. Treasury yields is largely attributed to rising oil prices. Reports emerged that Houthi rebels in Yemen launched a ballistic missile attack against Saudi Arabia, contributing to a 3.41% increase in Brent crude for November delivery, which closed at $106.60 per barrel. West Texas Intermediate (WTI) crude for November also rose by 2.66% to $94.61. The ongoing United Nations General Assembly has failed to produce clear solutions to the Middle East crisis, keeping international oil prices hovering around the $100 mark.
Additionally, strong U.S. economic indicators are bolstering inflation expectations and the Federal Reserve's outlook for interest rate hikes, further driving up Treasury yields (and lowering bond prices). The latest data showed that initial jobless claims in the U.S. fell to 197,000, the lowest level in nearly 57 years, indicating a robust job market. Furthermore, the S&P Global Composite Purchasing Managers' Index (PMI) for September was reported at 58.4, the highest level in over five years since July 2021. John Williams, President of the Federal Reserve Bank of New York, stated that the U.S. economy is demonstrating "remarkable resilience" and suggested that further rate hikes may be necessary by the end of the year.
Consequently, the strong performance of the U.S. economy amid high oil prices is fueling inflation and interest rate hike expectations, leading to rising Treasury yields (and falling bond prices). According to the CME FedWatch Tool, which reflects market expectations for Fed rate decisions, there is a 67.5% chance of a 0.25 percentage point rate hike at the upcoming Federal Open Market Committee (FOMC) meeting. Genadi Goldberg, head of U.S. interest rate strategy at TD Securities, remarked, "We are in a very tricky situation," adding that the high level of uncertainty has investors closely monitoring news headlines.
The rise in U.S. Treasury yields is also impacting the global bond market, with major countries experiencing similar increases in their government bond yields.
On September 24, Japan's 10-year government bond yield rose to 3.08%, the highest level since August 1996, while yields on 10-year bonds in France and Germany also reached their highest levels since the 2008-2009 global financial crisis. Nigel Green, CEO of the financial services firm deVere Group, noted, "The bond markets of major countries are all under pressure."
Ultimately, the global bond market's weakness is largely driven by rising oil prices, suggesting that developments in U.S.-Iran negotiations and the broader Middle East situation will be key factors in determining bond market stability. The Wall Street Journal reported, "There is a clear correlation between oil prices, bond yields, and stock prices. When oil prices rise, yields increase, and stock prices fall," indicating that bond investors are paying close attention to oil prices.
Meanwhile, the yield on the benchmark 10-year U.S. Treasury bond has increasingly surpassed the previously considered "economic and psychological threshold" of 5%, leading to discussions about resetting this benchmark. Reuters reported that investors now view a 6% yield on the 10-year Treasury as a potential new threshold. Mike Bell, market strategist at BlueBay Asset Management, stated, "People seem to think there is a 'magic number' where Treasury yields become problematic, but this should be viewed as a relative measure rather than an absolute figure."
* This article has been translated by AI.
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