Global bond markets experienced a sharp sell-off, with yields surging to new highs and share markets slumping on Friday, September 11. This downturn was primarily driven by soaring oil prices, which reached $109 a barrel for Brent crude, fueling inflation risks and prompting investors to anticipate further policy tightening from central banks worldwide. Australian bond yields, for instance, hit their highest in 15 years, and the Nikkei index fell by 2.8%.
The US government debt market was particularly affected, with the 10-year Treasury yield nearing the 5% threshold, its highest level in almost three years. This increase occurred despite US Treasury Secretary Scott Bessent's efforts to stabilize the market through a $5.2 billion bond-buying program. However, this intervention was largely seen as too small and timid, leading to concerns that it signaled nervousness rather than strength and undermined the Treasury's credibility. Analysts, such as George Catrambone of DWS Americas, noted that the buyback was insufficient to address the premium investors demand given current debt, deficit, and inflation concerns.
Several factors contributed to the market's unease. Escalating conflict in the Middle East, particularly the battle between the US and Iran over the Strait of Hormuz and Houthi rebel attacks, significantly boosted oil prices. Additionally, concerns over record sovereign borrowing, the US national debt exceeding $40 trillion, and President Donald Trump's fiscal policy promises, such as a $5,000 payment to all American adults, further exacerbated worries about US public finances. The perception of the US adopting interventionist policies, typically associated with weaker economies, also raised alarms among investors.
The sell-off saw two-year Treasury yields jump 16 basis points to 4.59%, the largest single-day increase since April 2025. Ten-year yields climbed 12 basis points, approaching their late 2023 peak, while 30-year bond yields rose 8 basis points to a fresh 19-year high of 5.37%. Traders are now speculating that the Federal Reserve might begin raising interest rates as early as its September 15-16 meeting, driven by the belief that elevated crude oil prices will sustain inflation, making it difficult for yields to decline.
