Wednesday’s sell-off began with data that challenged hopes for a quick easing cycle. S&P Global’s September services PMI climbed to 58.7, its strongest reading in nearly five years, while manufacturing reached 56.7, a more than four-year high. Chris Williamson, S&P Global Market Intelligence’s chief business economist, said: “US business continues to boom.”¹

That strength had a darker edge for bond investors. Williamson said fuel and transport costs were rising sharply with oil prices, driving the steepest jump in input costs for four years.¹ The 10-year Treasury yield rose to 5.058% — its highest since July 2007 — while the 30-year yield moved above 5.34%. Investors increased bets on another Fed rate rise after Governor Michael Barr said risks to the inflation target had increased.¹

By Thursday, the pressure had spread further along the curve and across global bond markets. The 30-year Treasury yield briefly touched about 5.44%, its highest since 2004, while the 10-year yield also reached a fresh post-2007 high. Japanese, British and German government bonds sold off as well.²

The market’s message was no longer simply that Washington’s borrowing needs were pushing yields higher. Mike Sanders of Madison Investments said fiscal, economic, geopolitical and supply-side inflation pressures had put bond markets in “less familiar territory,” adding that the yield rise “can no longer be attributed simply to concerns over the deficit.”²

Traders put the chance of an October Fed increase above 75%, up from roughly 49% a week earlier. New York Fed President John Williams said another increase by year-end would be “reasonable,” underscoring why a booming economy had become a headache for bonds.²