Two-year Treasury yields hit their highest level since June 2024, while a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB reached 16.9 basis points, its flattest since February 2025.
Traders now see more than a 68% chance of another increase when the US central bank next meets in October, according to CME Group's FedWatch Tool. That expectation was 53% before the release on Wednesday of S&P Global's flash US Composite PMI Output Index for September.
Business activity this month was fueled by a surge in new orders, though strong demand strained supply chains and pushed prices higher, according to the S&P Global data.
Oil prices and Treasury buyback add to moves
"We had strong macro data. I think that's what's pushing yields up and also oil prices are higher. The data indicates a stronger economy," which would add to concerns about inflation, said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
Oil prices were sharply higher on the day. Spikes in oil prices tied to the US-Israeli war with Iran have fueled much of the concern over inflation.
US yields held at higher levels after the Treasury said it would buy up to $6 billion in 20- and 30-year bonds in its buyback operation on Thursday.
The yield on the benchmark US 10-year Treasury note US10YT=RR was last up 9.3 basis points at 5.06%. It earlier reached its highest level since 2007.
The yield on the 30-year bond US30YT=RR rose 6.2 basis points to 5.365%.
The gap between the yields on two- and 10-year Treasury notes was last at 18.8 basis points.
The two-year US2YT=RR Treasury yield, which typically moves in step with interest rate expectations for the Fed, was up 9.3 basis points at 4.87%.
Yields rise on strong data and higher oil prices
US Treasury yields jumped on Wednesday, with the benchmark 10-year yield rising back above 5% and hitting its highest level since 2007, as oil prices rose and strong economic data boosted bets the Federal Reserve would hike interest rates next month.
Investors also digested comments from Federal Reserve Governor Michael Barr that the US central bank took an important step last week to "recalibrate" short-term borrowing costs to bring down inflation, and will likely need to deliver further interest rate hikes. The Fed raised rates last week for the first time since 2023 in order to combat persistent inflation.
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