Bond sell-off drives US 10-year yield to 24-year high mark

The global bond sell-off pushed 10-year US Treasury yields to 5.34% on Thursday, tightening financial conditions across markets.

That level was the highest since 2002, extending a move that has repriced government borrowing costs on both sides of the Atlantic. Investors also sold stocks, with London’s FTSE 100 down almost 1.7% for its weakest day since May.

US yield reaches 5.34%

The latest trading put pressure on assumptions that lower-than-forecast US inflation data on Wednesday would ease concerns over Federal Reserve policy. Traders instead focused on the strength of the US economy, wage pressure and the possibility that officials may keep interest rates elevated.

Brent crude rose 3% to about $101 a barrel on Thursday, compared with levels below that mark before the latest rise. Investors weighed that move against oil producers and shipping companies finding alternative routes that helped crude exports through the Strait of Hormuz recover toward levels seen before the Iran war.

Neil Wilson, investor strategist at Saxo UK, linked the equity move to the rate shock. "There is carnage in the bond market, which is hitting stocks hard," Wilson said.

UK budget pressure rises

In Britain, 30-year government bond yields touched 6% for the first time since 1998 before easing later in the session. Five-year and 10-year UK yields also rose, increasing the market pressure facing Chancellor John Healey before his first budget later this month.

The move matters for public finances because higher gilt yields raise the cost of issuing new debt and can narrow the room for tax and spending decisions. It also affects mortgages and corporate borrowing, where longer-term market rates help set the price of credit.

Mohit Kumar, an economist at Jefferies, cited the volume of debt sales alongside inflation worries. "Inflation, deficit and issuance concerns continue to weigh on the bond market," Kumar said.

France joins the sell-off

European markets weakened in parallel with the bond move. Germany’s DAX fell 1% on the day, France’s CAC 40 lost 1.6%, and broader selling left investors focused on governments with higher perceived fiscal risk.

French 10-year government bond yields reached 4.96%, their highest level since 2002. The spread over German yields, a gauge of the extra return investors demand to hold French debt, climbed to its highest level in more than a decade.

Japan was also caught in the repricing, with its 10-year yield moving toward the 30-year high set last month. The moves show how the same pressure points, oil, inflation and government borrowing, are being priced across markets with different central bank cycles.

Oil and deficits set paths

If oil holds near $101 and wage growth keeps investors alert to inflation, bond yields may remain under upward pressure as traders price a longer period of high policy rates. That path would tighten global financial conditions, raise refinancing costs for governments and companies, and keep banks, insurers and pension funds focused on duration risk.

If crude supply normalizes and inflation data continue to undershoot forecasts, the pressure could ease through lower expected policy rates and renewed demand for longer-dated debt. In that case, the direct benefit for heavily borrowed governments would be cheaper issuance, while equity sectors sensitive to rates could recover some ground.

The main uncertainty is whether oil-market stress or sovereign debt issuance sets the tone first. The next tests are central bank communications, demand at government bond auctions and any durable change in Middle East energy flows.