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U.S. Treasury yields surged Wednesday as stronger economic data, renewed inflation concerns and hawkish Federal Reserve comments triggered a sharp bond sell-off. The benchmark 10-year Treasury yield climbed to its highest level since July 2007.
The 10-year yield jumped 18.1 basis points to 5.129%, while the five-year yield rose 16.8 basis points to 5.010%, crossing 5% for the first time since July 2007. The 30-year yield advanced 10.7 basis points to 5.410%, and the rate-sensitive two-year yield gained 13.1 basis points to 4.908%.
Selling intensified after S&P Global reported that U.S. business activity accelerated for a fourth consecutive month in September, reaching its fastest pace since July 2021. Growth strengthened across both manufacturing and services.
Inflation pressures also increased, with average input costs rising at their fastest pace since October 2022. Higher fuel and transportation expenses were major contributors as elevated oil prices pushed business costs higher.
The data strengthened expectations for another Federal Reserve rate hike. CME FedWatch showed the probability of a 25-basis-point increase in October rising to nearly 71%, compared with roughly 55% a day earlier.
Fed Governor Michael Barr reinforced the hawkish outlook, saying risks surrounding the central bank's 2% inflation target had increased. Barr, who supported last week's rate increase, said further monetary policy adjustments would likely be necessary to bring inflation back toward target.
Treasury yields also faced upward pressure as oil prices rebounded following five consecutive sessions of losses. Crude prices rose after hopes for rapid diplomatic progress between the United States and Iran weakened. Iranian President Masoud Pezeshkian said Tehran remained open to negotiations but would not accept talks conducted under pressure.
In Europe, Germany's 10-year Bund yield declined to 3.448%, while French government bonds remained under pressure from fiscal concerns. France's debt is projected to reach 119.3% of GDP in 2026 and 121.7% in 2027, adding to investor concerns about the country's ability to reduce spending and stabilize public finances.
