US bond yields hit highest since 2002
US 10-year government bond yields rose to their highest level in nearly a quarter century amid a global sell-off in debt securities. The rise in borrowing costs increased pressure on financial markets and renewed questions about how long interest rates in major economies will remain elevated.
In trading on October 1, the yield on the 10-year US Treasury note reached about 5.34% — the highest since early 2002. The yield on 30-year bonds at the same time exceeded 5.6%.
Rising yields mean falling prices for the bonds themselves: investors demand higher compensation for lending to the US government over the long term. In the third quarter, the yield on 10-year Treasuries rose by about 87 basis points — the sharpest quarterly jump since 1994.
One of the main factors behind the sell-off was renewed inflation concerns. A sharp rise in oil prices above $100 a barrel reinforced expectations that expensive energy could reaccelerate inflation and force the Federal Reserve to maintain a tight monetary policy for longer.
Additional pressure is coming from growing US government borrowing. The market must absorb a larger volume of new bond issuance, while investors demand a higher premium for the risk of holding government debt over the long term. Simultaneously, large corporations are competing for capital, needing significant funds for building data centers, energy infrastructure, and developing artificial intelligence.
Capital allocation becomes particularly important as central banks are no longer acting as such major buyers of bonds as they were during the era of ultra-low rates. As a result, the cost of long-term financing is rising simultaneously for governments, businesses, and households.
The consequences are already visible in the US mortgage market. The average rate on 30-year mortgages climbed to 7.28%, the highest in nearly three years. Treasury yield increases typically have a direct impact on mortgage and corporate borrowing costs.
The problem is not limited to the US. The sell-off affected government bonds of the UK, France, Italy, and Japan. In France, 10-year yields approached 5%, and the spread over German bond yields widened sharply amid concerns about the budget deficit and public debt.
However, by October 2, pressure on the US debt market eased somewhat. Weaker US employment data reduced the likelihood of another rapid Fed rate hike, after which the 10-year yield fell to around 5.23%.
Despite the correction, long-term borrowing costs remain near multi-year highs. Investors continue to assess multiple factors: the future path of inflation, energy prices, the volume of government borrowing, and the Fed's willingness to continue its rate-hike cycle.
Sources: MarketWatch, Financial Times, The Wall Street Journal
