Bonds teeter after US Treasuries' worst quarter since 1994
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An employee holds U.S. dollar bank notes at a money changer in Jakarta, Indonesia, April 9, 2025. REUTERS/Willy Kurniawan
SINGAPORE, Oct 1 (Reuters) - US yields hit two-decade highs for a seventh straight session on Thursday before a drop in oil prices steadied a bond market reeling from its worst quarter this century, as investors brace for higher interest rates.
The benchmark US 10-year Treasury racked up an 87.1 basis point rise in yield over the September quarter, the sharpest quarterly rise since 1994, according to LSEG data.
A yardstick for borrowing costs and asset prices globally, the 10-year Treasury yield touched 5.31% on Thursday, the highest since 2007, before steadying just below 5.28%.
The 30-year Treasury yield topped 5.65%, its highest since 2002.
In Japan, where inflation is finally taking hold after a decades-long battle with deflation, sovereign yields notched an unprecedented fifth consecutive quarter of double-digit gains.
Yields rise when bond prices fall. Yields have surged around the world as soaring energy costs fan inflation and as the boom in AI and data centre building lifts expectations for growth and for where short-term interest rates will settle.
Higher rates matter because they raise financing costs for companies and mortgage borrowers and leave governments spending more on interest payments, with less left over for social programmes.
THE END IN SIGHT?
Traders have scrambled to reverse expectations for US interest rate cuts this year. After a hike last month, they now expect at least three more Federal Reserve hikes before the middle of 2027.
"It was the Treasury bear market that had to happen," said Andrew Lilley, chief rates strategist at Barrenjoey, an investment bank based in Sydney.
"We'd been persisting in this unstable equilibrium where core inflation was unsustainably high and yet the Fed had done nothing about it," he said.
"I'd say the end is in sight," Lilley said, but he added that the resilience in other markets could come under pressure from the higher returns in bonds.
European bond futures and cash bond markets in Australia, South Korea and Japan traded under pressure on Thursday.
(Reporting by Tom Westbrook; Editing by Jamie Freed)
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