A global sell-off in government debt escalated on Thursday, with US Treasuries experiencing their worst single-day decline since April of the previous year. This was triggered by robust US economic data and surging oil prices, leading investors to anticipate further interest rate increases by the Federal Reserve. The yield on the 10-year US Treasury jumped by 0.15 percentage points to 5.11 percent on Wednesday, reaching 5.13 percent in Asian trading on Thursday. Derivatives traders are now pricing in an almost 70 percent chance of a Fed rate hike in October, up from approximately 50 percent earlier in the week.
The repercussions spread to Asian markets, with Japan's 10-year government bond yield climbing 0.1 percentage points to 3.08 percent, its highest level since 1996. Five-year Japanese yields also rose by 0.1 percentage points to 2.37 percent. In Europe, government bonds stabilized after sharp declines on Wednesday; Germany's 10-year Bund yield was flat at 3.55 percent, while UK gilt yields of the same maturity slipped 0.01 percentage points to 5.34 percent after a 0.11 percentage point rise on Wednesday. French government bonds saw their additional borrowing costs over German bonds hit the highest level since the 2012 Eurozone crises.
The bond sell-off was exacerbated by rising oil prices, with global benchmark Brent crude up 0.2 percent on Thursday morning at $103.25 a barrel, following a nearly 4 percent jump on Wednesday. The US 30-year Treasury bond yield soared as high as 5.446 percent, a 22-year high, while the 10-year US Treasury bond yield surged to 5.196 percent, the highest since 2007. Analysts attribute this surge to a combination of rising Fed hike expectations, stronger growth forecasts, increased oil prices, and fiscal concerns. The escalating oil prices are also putting pressure on UK policymakers ahead of their budget, with concerns about higher borrowing costs and potential interest rate increases to combat inflation.
