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Bond Yields Surge: Wall Street Tumbles Amid Rate Hike Fears
24 Sep
Summary
- US 10-year bond yield surged to 5.135%, highest since July 2007.
- Economic data showed fastest growth since 2015, fueling rate hike fears.
- Fed Governor Barr warned of further rate hikes, increasing probability.
- Oil prices rebounded, adding pressure to bond yields and markets.
US bond yields saw a significant surge on Wednesday, September 23, with the 10-year yield climbing to 5.135%, its highest point since July 2007. This dramatic increase, the largest single-day jump since April 7, 2025, contributed to a broad sell-off on Wall Street. The Dow Jones dropped 350 points, and the S&P 500 and Nasdaq also closed with losses.
Several factors drove the rise in bond yields. Firstly, robust economic data, including the S&P Global Services PMI at a five-year high of 58.7 and a four-year high Manufacturing PMI of 56.7, indicated the fastest business activity growth since 2015, excluding a COVID-19 rebound. This fueled concerns about potential further interest rate hikes by the Federal Reserve.
Secondly, Federal Reserve Governor Michael Barr reinforced these fears by stating that additional policy adjustments might be necessary to curb inflation. Following his remarks, the probability of a 25 basis point rate hike on October 28 rose to 70%. Additionally, a weak auction for five-year Treasury notes showed poor demand, with yields significantly exceeding the previous average.
Finally, a rebound in oil prices and concerns over potential diesel export bans added further pressure to bond yields. Investors are now closely watching the upcoming meeting between Chinese President Xi Jinping and US President Donald Trump, especially after the extension of the Busan trade truce.
