US Treasury yields have climbed to multi-decade highs, putting global markets on edge and reinforcing expectations that the Federal Reserve may need to raise interest rates further. The 10-year Treasury yield traded around 5.29%, after earlier pushing above 5% for the first time since 2023, while the 30-year yield surpassed 5.61% to reach its highest level since 2002. The 2-year yield, which is most sensitive to Fed policy expectations, advanced to about 4.96%.
The bond market is heading for its worst month in years. The 10-year yield is up roughly 50 basis points in September, the largest monthly rise since 2022, while two-year yields have jumped almost 60 basis points. The ICE BofA MOVE index, a bond-market volatility gauge, has surged nearly 30% this month. Traders now price in a 68% to 72% chance of a Fed rate hike at the October meeting, and a 95% probability of an increase in December, according to the CME FedWatch Tool. The Federal Open Market Committee earlier raised its benchmark rate by 25 basis points to a range of 3.75% to 4%, its first hike since 2023.
Several forces are driving yields higher. The prolonged war on Iran has kept energy costs elevated, adding to inflation concerns. Heavy corporate bond issuance, particularly from hyperscale technology companies financing artificial intelligence infrastructure, is competing with government debt for investor capital. AI-related bond sales have more than doubled this year to over $200 billion, according to LSEG data. OpenAI is separately seeking at least $30 billion in fresh funding at a valuation of about $1.4 trillion, according to Bloomberg News.
Oil prices eased on Tuesday as Middle East exports recovered, with Brent crude falling 2.5% to $102.62 a barrel and West Texas Intermediate dropping 3.6% to $89.27, though both remain on track for strong monthly gains. Gold rebounded 1.4% to $4,171.98 an ounce after touching its lowest level since August 5. For risky assets such as cryptocurrencies, the combination of higher Treasury yields, a stronger dollar and rising Fed hike expectations creates a more challenging liquidity environment.
