The strain in bond markets was global, with the Telegraph reporting on Tuesday that the Bank of England could stop selling 20- and 30-year gilts it holds, presumably as a way to lessen pressure on long-dated debt.
That premium has been rising steadily this year in part as compensation for a fuel-driven increase in inflation, with the conflict in the Middle East showing no signs of easing.
Investors are also wary of the explosion in government debt globally and tempted by higher yields offered by hyperscalers as they fund mountains of AI investment.
That potent mix lifted 10-year yields US10YT=RR to a top of 5.0266% in Asia, while 30-year yields US30YT=RR reached 5.3858%. Yields on 2-year debt US2YT=RR touched 4.6819%.
U.S. Treasury yields climb as Fed hike bets build
SYDNEY, Sept 15 (Reuters) - U.S. 10-year Treasury yields hit peaks not seen since 2007 on Tuesday as investors gird for what many suspect will be just the first in a series of rate increases from the Federal Reserve as it battles stubborn inflation.
Short-term U.S. yields reached their highest since mid-2024 as markets priced a 92% probability the Fed would hike rates by 25 basis points to 3.75%-4.0% on Wednesday, and a real chance of reaching 4.5% next year. 0#USDIRPR
"The path of least resistance for us is that yields continue to move higher from here," said Calvin Tse, head of U.S. strategy and economics at BNP Paribas.
"Level-wise, it's very difficult to say, because we believe 10-year yields can move higher both as the markets imply a higher interest rate path for the Fed (and) there's scope for term premium to rise as well."
Term premium is the added yield investors demand to lend for longer periods, a recompense for the opportunity cost of not holding that cash.
Higher yields raise borrowing costs and weigh on equities
Ten-year yields have now climbed 86 basis points so far this year, raising borrowing costs for home buyers, corporations and the government as its budget remains deep in deficit.
Higher yields also make bonds more attractive versus equities, while lifting the discount applied to future corporate earnings and testing equity valuations.
Treasury Secretary Scott Bessent has tried to staunch the bleeding in bond markets by increasing the size of debt buybacks, but with scant success.
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