A wave of selling across global bond markets deepened after a fresh batch of strong US economic data rekindled fears that the American economy is overheating and prompting the Federal Reserve to raise interest rates further this year.
Yields on five-year US Treasuries broke above 5% for the first time since 2007, while 10-year Treasury yields also climbed over the 5% threshold — marking their largest one-day move since Donald Trump's "Liberation Day" tariff announcement roughly 18 months ago. The 10-year yield surged 15.2 basis points, the biggest jump since the April 2025 market turmoil.
The trigger was a flash September PMI survey showing US business activity expanding at the fastest pace in more than five years, with new orders growing at the quickest rate since April 2022 and manufacturing hiring the strongest since February 2021. At the same time, supplier delivery times stretched and input costs remained elevated amid high energy prices and supply-chain pressures. A rebound in oil prices added further momentum to the inflation narrative.
Jim Reid, market strategist at Deutsche Bank, identified the global bond selloff as "the main story," saying strong PMIs and rebounding oil prices were driving mounting speculation about faster-than-expected rate hikes.
Chris Weston, head of research at brokerage Pepperstone, noted that with unemployment at 4.1% and growth running above trend, the US economy is showing "signs of modest overheating." He added that if the next inflation readings continue to print hot, policymakers may conclude aggregate demand needs to be brought lower through higher interest rates.
Investors also reacted to a surprisingly weak auction of US five-year bonds late Wednesday that attracted low demand — a potential signal that appetite for Treasury securities is waning. As US debt serves as the benchmark for global financial markets, the sell-off quickly spread abroad; Japan's benchmark bond yields hit their highest level in decades.
According to CME Fedwatch, the market now prices in a 55% chance that US rates will be half a percentage point higher by the end of December, implying two additional quarter-point hikes or one larger increase, on top of the Fed's rate rise earlier this month. Futures are pricing a 71% probability of another rate hike at the next Federal Open Market Committee meeting in October.
Market attention also turned to several scheduled data releases and speeches, including the Swiss National Bank's interest rate decision at 8:30am BST, the UK's CBI distributive trades survey at 11am BST, US jobless claims at 1:30pm BST, and Bank of England policymaker Clare Lombardelli's speech later that afternoon.
