US 10-year Treasury yield hits 5.362%, highest since 2002, as selloff resumes
Version 2: The update adds the Oct 7 resumption of the Treasury selloff, with the 10-year yield reaching 5.362% and the 30-year 5.731%, and adds oil-price pressure from reported Iranian attacks in the Strait of Hormuz, the Fed minutes and a $39 billion 10-year auction.
In short
On Oct 7 the US Treasury selloff resumed, with the 10-year yield rising to 5.362% intraday and the 30-year to 5.731%, both the highest since 2002, according to Yonhap. The move extends a record quarterly rise and is driven by inflation pressure, higher oil prices after reported Iranian attacks in the Strait of Hormuz, expectations of further Fed tightening and heavy Treasury issuance. Investors are watching the Fed’s September minutes and a $39 billion 10-year auction.
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The US Treasury selloff resumed on Oct 7. Yonhap reported that the 10-year yield rose about 8bp to 5.362%, its highest since April 2002, while the 30-year rose 8.3bp to 5.731%, its highest since May 2002, and the 2-year reached 4.818%. Chosun Ilbo also said the 10-year exceeded 5.36% intraday and the 30-year reached 5.73%. Yonhap attributed the move to inflation pressure, rising energy prices after Iran resumed attacks on ships in the Strait of Hormuz, and caution over further Federal Reserve tightening, while Chosun Ilbo pointed to oil prices, heavy Treasury issuance and Fed tightening. New York stocks opened lower, Yonhap said. [ 7 , 8 ]
The latest leg extends a sharp run-up. On Oct 5, Bloter, citing CNBC, reported the 10-year yield rose about 7bp to 5.347%, its highest since April 3, 2002, and the 30-year rose more than 7bp to 5.702%, its highest since late May 2002. Asia Economy, citing Bloomberg, reported the 10-year touched 5.349% intraday, above the 5.344% recorded Oct 1, and the 30-year reached 5.70%. Dong-A Ilbo, citing MarketWatch, put the 10-year intraday at 5.35%, the highest since April 2002. The September ISM services PMI came in at 54.9, down from August but still in expansion, while its prices index rose to 74.0. [ 3 , 4 , 6 ]
The third quarter set a record. Chosun Ilbo reported that the 10-year yield closed the quarter at 5.29%, up 0.85 percentage point from the previous quarter, the largest quarterly rise since the first quarter of 1994. A second Chosun Ilbo report, citing Reuters, put the increase at 0.87 percentage points to the same 5.29% level. The paper compared the scale of the move to 1994, when rapid Fed rate increases led to what it called a bond massacre. [ 1 , 2 ]
Market participants pointed to several drivers and warned of more to come. Bloter said solid US growth, expanded artificial intelligence infrastructure investment and persistent inflation pressure were feeding expectations of further Fed tightening. It cited Infrastructure Capital Advisors founder and CEO Jay Hatfield, who called the move a “momentum-driven selloff” and said the 10-year typically trades about 100bp above the Fed’s terminal rate, leaving room for further increases. Asia Economy cited BMO Capital Markets strategist Ben Hartman as saying the ISM data showed rising price pressure and strong nominal growth. BMO Asset Management’s Earl Davis told Bloomberg TV that a 30-year yield above 6% is “inevitable” and could come as early as this month; Asia Economy noted the 30-year has not traded above 6% since 2000. [ 3 , 4 ]
Investors were also watching upcoming events. Bloter said the Fed’s minutes for its September meeting were due Oct 7, and that rate futures reflected about an 80% chance the Fed would hold rates at its October meeting. Asia Economy reported that the rate swap market reflected roughly a 25% chance of an October hike and effectively one 0.25 percentage-point increase by December, and that the Treasury began this week’s auctions with a $58 billion three-year sale on Oct 6. Yonhap reported that a $39 billion 10-year auction was scheduled for Oct 7 and that experts expected investors to demand a higher premium because of inflation risk and heavy Treasury issuance. [ 3 , 4 , 7 ]
The rise in yields has costs and has drawn some buyers. Dong-A Ilbo reported that higher yields have raised US mortgage rates and corporate new borrowing costs, and increased the interest burden on federal debt above $40 trillion. It said the Bloomberg US Aggregate Bond Index’s total return had turned negative this year. Still, it reported that investors were putting more money into bonds because newly purchased bonds offer higher yields, and Newsis and Dong-A Ilbo headlines said bond funds attracted $26.4 billion over five days. [ 5 , 6 ]
Why it matters
US Treasury yields are a benchmark for global borrowing costs, and Korean business outlets describe the move as a broad shock to global markets. Higher yields raise US mortgage and corporate borrowing costs and increase interest payments on federal debt above $40 trillion, while also influencing the won and Korean rate expectations. The coverage frames the scale of the selloff as comparable to the 1994 bond rout.
Key facts
- On Oct 7 the US 10-year Treasury yield rose about 8bp to 5.362%, the highest since April 2002, while the 30-year rose 8.3bp to 5.731%, the highest since May 2002, and the 2-year reached 4.818%. [ 7 ]
- Chosun Ilbo reported the 10-year yield closed the third quarter at 5.29%, the largest quarterly rise since the first quarter of 1994; one report said the rise was 0.85 percentage point and a later report citing Reuters said 0.87 percentage point. [ 1 , 2 ]
- On Oct 5 the 10-year yield reached about 5.35% intraday and the 30-year rose above 5.70%, both the highest since 2002, according to Bloter, Asia Economy and Dong-A Ilbo. [ 3 , 4 , 6 ]
- The September ISM services PMI was 54.9 and its prices index rose to 74.0. [ 3 , 4 ]
- BMO Asset Management’s Earl Davis said the 30-year yield surpassing 6% is inevitable and could happen as early as this month. [ 3 , 4 ]
- The Oct 7 selloff was attributed to inflation pressure, rising energy prices after Iran resumed attacks in the Strait of Hormuz, Fed tightening expectations and heavy Treasury issuance. [ 7 , 8 ]
- The Fed’s September FOMC minutes and a $39 billion 10-year Treasury auction were scheduled for Oct 7, after a $58 billion three-year auction on Oct 6. [ 3 , 4 , 7 ]
- Newsis and Dong-A Ilbo headlines said bond funds attracted $26.4 billion over five days even as Treasury prices fell. [ 5 , 6 ]
Confirmed by several sources
- On Oct 5 the 10-year Treasury yield reached its highest level since 2002, rising to about 5.35%, and the 30-year rose above 5.70%, also a 2002 high. [ 3 , 4 , 6 ]
- The September ISM services PMI was 54.9 and its prices index rose to 74.0. [ 3 , 4 ]
- BMO Asset Management’s Earl Davis said a 30-year yield above 6% is inevitable and could come as early as this month. [ 3 , 4 ]
- On Oct 7 the 10-year yield rose about 8bp to 5.362% and the 30-year rose 8.3bp to 5.731%, both the highest since 2002, while the 2-year reached 4.818%. [ 7 , 8 ]
- The Oct 7 selloff was attributed to inflation pressure, rising energy prices after Iran resumed attacks in the Strait of Hormuz, Fed tightening expectations and heavy Treasury issuance. [ 7 , 8 ]
- The Fed’s September FOMC minutes and a $39 billion 10-year Treasury auction were scheduled for Oct 7. [ 3 , 4 , 7 ]
Still unclear
- The size of the third-quarter rise in the 10-year yield: 0.85 percentage point or 0.87 percentage point. Chosun Ilbo’s first report cites Treasury data for 0.85 percentage point, while its later report cites Reuters for 0.87 percentage point; both agree on the 5.29% closing level and that it was the largest quarterly rise since early 1994.
- The exact intraday peak in the 10-year yield on Oct 5. Bloter cites CNBC for 5.347%, while Asia Economy cites Bloomberg for 5.349%; the figures are close but not identical and are attributed to different data providers.
- How strongly the market expects the Fed to act at its October meeting. Bloter reports rate futures price about an 80% chance of a hold, while Asia Economy reports the rate swap market reflects roughly a 25% chance of a hike and effectively one 0.25 percentage-point increase by December.
- Whether the 30-year yield will actually exceed 6%. This is a forecast attributed to BMO’s Earl Davis, not a settled outcome; Asia Economy notes the 30-year has not traded above 6% since 2000.
- The reported $26.4 billion of inflows into bond funds over five days. The figure appears in the headlines of Newsis and Dong-A Ilbo; Newsis’s article text is about a satellite launch, and Dong-A’s summary attributes the flow to higher yields but is truncated.
- The claim that Iran resumed attacks on ships in the Strait of Hormuz. This is reported only by Yonhap in these documents as a factor behind rising oil prices and Treasury yields.
- The US 10-year yield closed the third quarter at 5.29%, the largest quarterly rise since the first quarter of 1994, according to Chosun Ilbo, which cited US Treasury and Reuters data. Reported by a single source so far
What local media are saying
Timeline, local time
- Chosun Ilbo reports the 10-year Treasury closed the third quarter at 5.29%, up 0.85 percentage point, the largest quarterly rise since the first quarter of 1994. [ 1 ]
- A second Chosun Ilbo report, citing Reuters, puts the quarterly rise at 0.87 percentage points to 5.29%. [ 2 ]
- Bloter, citing CNBC, reports the 10-year at 5.347% and the 30-year at 5.702%, and notes the ISM services reading and the Fed minutes due Oct 7. [ 3 ]
- Asia Economy, citing Bloomberg, reports the 10-year touched 5.349% and the 30-year 5.70%, and says the Treasury begins a $58 billion three-year auction that day. [ 4 ]
- Newsis headline says the 10-year yield reached 5.35% intraday and bond funds drew $26.4 billion over five days. [ 5 ]
- Dong-A Ilbo reports the 10-year intraday reached 5.35%, the highest since April 2002, and that investors were adding money to bond funds as yields rose. [ 6 ]
- Yonhap reports the selloff resumed, with the 10-year at 5.362% and the 30-year at 5.731%, and says oil rose after Iran resumed attacks in the Strait of Hormuz. [ 7 ]
- Chosun Ilbo reports the 10-year intraday exceeded 5.36% and the 30-year reached 5.73%, citing inflation, oil prices, heavy issuance and Fed tightening. [ 8 ]