U.S. Treasury yields moved higher on Thursday, extending the previous session’s increase as investors assessed stronger business activity data, higher energy prices, Federal Reserve commentary and demand at a government bond auction.
The benchmark 10-year Treasury yield rose to 5.142%, its highest level since July 2007. On Wednesday, the yield had recorded its largest single-session increase since April 2025.
The 30-year Treasury yield increased to 5.443%, its highest level since 2004.
At the shorter end of the curve, the two-year Treasury yield reached 4.908%, its highest level since May 2024, after recording its largest one-day increase since March 2026 during the previous session.
Business Activity and Treasury Auction in Focus
Preliminary Purchasing Managers’ Index data indicated that U.S. business activity accelerated to its highest level in more than five years in September, supported by an increase in new orders.
The figures contributed to a reassessment of the outlook for inflation and Federal Reserve monetary policy.
Treasury markets also reacted to a five-year note auction on Wednesday that attracted lower demand, with primary dealers absorbing a larger share of the issuance.
Oil prices were another factor under consideration as markets monitored developments involving the United States and Iran and their implications for energy supplies and shipping through the Strait of Hormuz.
Iranian President Masoud Pezeshkian said Tehran would “never surrender,” while U.S. President Donald Trump had previously threatened at the United Nations to “annihilate” Iran if hostilities escalated.
The comments added to uncertainty surrounding the timing of any reopening of the Strait of Hormuz.
“We expected the 10-year bond yield to remain in the 4.00%-5.00% range this year. We aren’t giving up on that range just yet; it mirrors the range during the five years before the Great Financial Crisis. Nevertheless, the risks now clearly point to more upside in yields,” Yardeni Research said.
Markets Reassess Federal Reserve Rate Outlook
Federal Reserve officials also commented on the outlook for monetary policy following the economic data and developments in energy markets.
Fed Governor Michael Barr said policymakers would probably need to raise interest rates further to return inflation to target.
Chicago Fed President Austan Goolsbee also discussed the potential inflationary implications of higher energy prices and whether their effects could prove more persistent.
According to the supplied CME FedWatch data, markets were pricing an approximately 70% probability of another quarter-percentage-point rate increase at the Federal Reserve’s October meeting, compared with about 50% before Wednesday’s PMI release.
The figure represents market-implied pricing and does not establish that the Federal Reserve will raise rates at the meeting.
Treasury Continues Bond Buyback Programme
Selling across the Treasury curve continued as the U.S. Treasury proceeded with operations under its secondary-market buyback programme.
The Treasury indicated that it would purchase up to $6 billion of 20-year and 30-year securities during Thursday’s operations, representing its second long-term buyback operation of the month.
“A relief rally in bond prices would probably require a resolution of the war in the Middle East that would lower oil prices. Another possibility is that US Treasury Secretary Scott Bessent will act to bring bond yields down by buying back more Treasury bonds and issuing more Treasury bills,” Yardeni Research said.
These comments represent Yardeni Research’s assessment of potential market scenarios rather than confirmed future actions by the U.S. Treasury.
German Bond Yields Also Rise
Government bond yields also moved higher in the eurozone.
Germany’s 10-year Bund yield increased to 3.549%, following its largest one-day increase in more than two months during Wednesday’s session.
The two-year Schatz yield rose to 3.303%, its highest level since September 2023, after recording its largest daily increase in almost two weeks during the previous session.
Preliminary PMI data showed eurozone business activity expanding at its fastest pace in more than three years.
The figures contributed to increased market expectations that the European Central Bank could maintain restrictive monetary policy for longer or consider further interest rate increases.
Those expectations reflect market assessments and do not represent confirmed future ECB policy decisions.
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