Bond Selloff Extends as Fed Rate-Hike Bets Build: Markets Wrap

(Bloomberg) — Global bonds extended their selloff after robust economic data and weak demand at a debt auction pushed Treasury yields across much of the curve to their highest levels in almost two decades. Bets on further Federal Reserve interest-rate hikes increased.

Government bonds in Japan, Australia and New Zealand all retreated after yields on the US 10-year surged 15 basis points to 5.11% — the biggest one-day increase since the market turmoil triggered by President Donald Trump’s April 2025 tariff announcement. Weak demand at a sale of US five-year notes pushed the yield above 5% for the first time since 2007.

Sentiment appeared to steady early in the Asian day with Brent paring some of Wednesday’s rally, when the global benchmark jumped 3.9%. Crude oil fell 0.8% to about $102.30 a barrel. Elsewhere, the dollar held near its highest level since late July.

Stocks were mixed with Japan’s Nikkei 225 Index rising 1.7% as Tokyo returned from a three-day holiday, while the broader MSCI Asia Pacific Index edged 0.2% lower. Chinese equities will also be in focus after the US and China extended their trade truce by two months as President Xi Jinping landed in America for his first state visit in 11 years.

The prospect of higher energy costs colliding with a still-strong US economy is likely to keep pressure on bonds and equities as investors reassess how far the Fed may need to tighten policy. Traders have ramped up bets on further rate hikes after the US central bank raised rates last week for the first time 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.”

In other corners of the market, gold held its losses from the previous session, when bullion fell 1.7% to about $4,290 an ounce. The non-yielding commodity’s appeal lessens as interest rates rise.

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.

Meanwhile, data showed US mortgage rates climbed to a more than two-year high, while the S&P Global flash US composite purchasing managers index rose in September to its highest since July 2021, signaling faster growth in business activity.

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.

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%.

“You don’t want to step in front of the freight train today,” said Sean Simko, head of fixed-income investment management at SEI Investments. “You’re seeing the trifecta — stronger economic data, supply pushing the five-year to levels we haven’t seen in years and the view that inflation is sticky globally.”

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. Walt Disney Co. is raising prices on several of its streaming subscriptions in the US for the sixth time in as many years. McDonald’s Corp. is earmarking roughly $8.5 billion to help franchisees implement a multiyear plan to serve better food, improve service and make restaurants easier to run. Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.1% as of 9:44 a.m. Tokyo time Hang Seng futures fell 0.4% Nikkei 225 futures (OSE) rose 1.2% Japan’s Topix rose 0.2% Australia’s S&P/ASX 200 fell 1.3% Euro Stoxx 50 futures fell 0.3% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1376 The Japanese yen was little changed at 158.24 per dollar The offshore yuan was little changed at 6.7128 per dollar The Australian dollar was little changed at $0.7033 Cryptocurrencies

Bitcoin rose 0.1% to $84,341.42 Ether rose 0.5% to $2,685.32 Bonds

The yield on 10-year Treasuries was little changed at 5.12% Japan’s 10-year yield advanced seven basis points to 3.055% Australia’s 10-year yield advanced 15 basis points to 5.40% Commodities

West Texas Intermediate crude fell 0.6% to $91.61 a barrel Spot gold rose 0.2% to $4,294.26 an ounce This story was produced with the assistance of Bloomberg Automation.

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