Bond Selloff Deepens as Fed Rate-Hike Bets Build: Markets Wrap
(Bloomberg) — A global bond selloff intensified, jolting investors as robust US economic data and weak demand at a debt auction drove Treasury yields across much of the curve to their highest levels in almost two decades.
The bruising losses on Wall Street swept into Asia Pacific with bonds sliding in Japan, Australia, New Zealand, as well as emerging markets. The US 10-year yield steadied at 5.12% in Asian trading, after Wednesday’s 15-basis-point surge, the biggest since the turmoil triggered by President Donald Trump’s April 2025 tariff announcement.
Weak demand at an auction of five-year notes had pushed the yield above 5% for the first time since 2007. A Bloomberg gauge of the dollar hovered around levels last seen in July as traders priced in more interest-rate hikes by the Federal Reserve.
Brent erased losses from earlier in the session to trade little changed around $103 a barrel. Asian shares tracked Wall Street benchmarks and fell 0.6%, and equity-index futures indicated losses may extend to Europe as well.
The prospect of higher energy costs colliding with a still-strong US economy is adding pressure to a bond market already rattled by weak auction demand and concerns that interest rates will stay elevated. As Treasury yields surged — pushing the average yield on global government debt to within a whisker of 4% — traders ramped up bets on further Fed tightening following last week’s first rate increase since 2023.
“This is the market telling us we’ve entered a genuine re-tightening cycle,” said Tony Miano at Wells Fargo Investment Institute. “The entire curve is repricing at once, which means higher discount rates for equities, higher mortgage and corporate borrowing costs, and a higher bar for risk assets.”
Swaps now fully reflect three quarter-point hikes over the next year, with significant hedging for a fourth. If realized, that would take the central bank’s target rate into a range of 4.75% to 5%.
What Bloomberg Strategists Say…
“The delayed JGB reaction to the BOJ hike is coming through clearly in Thursday’s selloff. Fixed-income investors are back from holidays and have added the Treasuries swoon to their own concerns that the BOJ is still behind the curve in taking rates to the neutral zone.”
— Mark Cranfield, Markets Live Strategist. For more on the analysis, click here.
Officials raised borrowing costs last week to a range of 3.75% to 4%, a move Fed Chair Kevin Warsh said removed a “dose of accommodation.” Fed Governor Michael Barr said further rate hikes are likely needed to return inflation to the central bank’s 2% target.
In other corners of the market, gold edged 0.2% lower to trade around $4,280 an ounce. The non-yielding commodity’s appeal lessens as interest rates rise.
Equities in mainland China fell 1.5% even as US Treasury Secretary Scott Bessent announced that the US and China sealed a two-month extension to their trade truce. President Xi Jinping landed in America for his first state visit in 11 years.
Some analysts said the US-China agreement to extend a trade-war truce until Jan. 10 removed an immediate source of uncertainty, but material progress was needed to dispel further overhang.
US diesel futures jumped as the Trump administration worked with refiners to voluntarily curb exports of the product as an alternative to an outright ban on overseas shipments.
In Japan, the 10-year yield rose 10 basis points to 3.075% on Thursday, its highest since 1996. Its Australian counterpart posted the steepest increase in almost two weeks, while New Zealand’s equivalent recorded its biggest jump since early March.
The sharp rise in yields has put the Fed’s rate path back at the center of attention.
In projections released after last week’s decision, officials penciled in another increase before year-end, according to the median forecast. The median projection for 2027 showed no additional hikes next year, though eight officials saw the benchmark rate ending the year half a percentage point above current levels.
“After the monetary policy meetings, there was a sense that bond yields might settle down, so the speed of the latest rise feels quite rapid,” said Ikuo Mitsui, a fund manager at Aizawa Securities Co. “That said, yields are reaching fairly attractive levels, and bond investors may now start looking for opportunities to put money to work.”
Corporate Highlights:
Meta Platforms Inc. unveiled a palm-sized, dedicated gadget for using Muse, the company’s popular new artificial intelligence assistant, pushing deeper into the AI devices market with a surprise announcement. BHP Group suspended all mining operations at its giant Escondida copper complex in Chile after a worker died in an accident Wednesday. Schneider Electric SE agreed to acquire Shelly Group SE, a maker of smart devices for the home, in a deal that values the Bulgarian company at around €1.2 billion ($1.4 billion) excluding debt. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.3% as of 6:50 a.m. London time Nasdaq 100 futures fell 0.3% The MSCI Asia Pacific Index fell 0.6% The MSCI Emerging Markets Index fell 0.7% Japan’s Topix was little changed Australia’s S&P/ASX 200 fell 0.7% Hong Kong’s Hang Seng fell 0.5% The Shanghai Composite fell 0.9% Euro Stoxx 50 futures fell 0.5% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1381 The Japanese yen was little changed at 158.23 per dollar The offshore yuan was little changed at 6.7160 per dollar The British pound was unchanged at $1.3239 Cryptocurrencies
Bitcoin was little changed at $84,163.14 Ether rose 0.6% to $2,687.83 Bonds
The yield on 10-year Treasuries advanced one basis point to 5.12% Japan’s 10-year yield advanced nine basis points to 3.075% Australia’s 10-year yield advanced 12 basis points to 5.37% Commodities
Spot gold was little changed West Texas Intermediate crude fell 0.2% to $91.99 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Momoka Yokoyama.
©2026 Bloomberg L.P.
