Bond Market Volatility Surges as Treasury Yields Reach Highest Level Since 2007
A fresh bout of volatility is sweeping global bond markets as stronger economic data and rising oil prices revive expectations of higher interest rates. The benchmark 10-year Treasury yield jumped 13.89 basis points to 5.106%, its highest level since 2007, while the two-year Treasury yield rose 11.4 basis points to 4.891%. Japanese government bonds were also hit, with the benchmark 10-year yield jumping eight basis points to 3.062%.
The catalyst was a stronger-than-expected set of economic readings, including S&P Global's flash US Composite PMI Output Index, which climbed to 58.4 in September from 56.0 in August. The data complicated the outlook for monetary policy and encouraged traders to price the possibility of another interest rate increase.
The result was Fed funds futures pricing in roughly a 70% probability of an October rate hike, according to the CME Group's FedWatch tool. Federal Reserve Governor Michael Barr added to those expectations, saying that inflation remained above the Fed's 2% target and further policy adjustments were likely necessary.