U.S. 10-Year Yield Hit a 24-Year High This Week, Then Eased as Auctions Drew Buyers

The global bond selloff slowed this week, but it has not ended.

The U.S. 10-year Treasury yield reached 5.365% and the 30-year hit 5.733% earlier this week, both 24-year highs, according to Tradeweb data. By Friday, Oct. 9, the 10-year traded at 5.253% and the 30-year at 5.607%. Both were on pace for a small weekly decline.

Buyers show up at the auctions

Solid 10-year and 30-year Treasury auctions on consecutive days did the work. "Solid 10-year and 30-year auctions over consecutive days show there is a level where buyers step in," ING's Padhraic Garvey and Benjamin Schroeder wrote in a note.

That is the first sign this month that demand has a price floor. It is not a reversal. Yields are still far above where they started the year.

How the selloff got here

The two-year yield, which tracks Fed expectations, climbed from 3.48% at the start of the year to 4.93% in September, CNN reported. The driver is energy. The war with Iran and the closure of the Strait of Hormuz pushed Brent crude to $106.60 a barrel at one point late last month, adding to inflation pressure.

A hot September reading from S&P Global's business survey, showing strong activity alongside rising energy-driven prices, set off a steep selloff in late September. At that point, CME FedWatch put the odds of an October Fed hike at 71%, up from 11% a month earlier.

The pressure was global. German and French 10-year yields hit roughly 15-year highs. Japan's 10-year reached 3.08%, a level last seen in 1996. DeVere Group CEO Nigel Green put it this way: "Every major bond market's feeling the heat at once."

On Oct. 1, the 10-year briefly topped 5.3% before retreating to 5.2%, Epoch Times reported.

Fed expectations

The Dow Jones market report says the Fed is expected to hold at its next meeting. Money markets, though, fully price three rate increases over the next 12 months, according to LSEG data.

Rabobank's RaboResearch added a December 2026 hike to its Fed forecast after recent speeches by FOMC participants. The firm cited the Committee's "increased risk aversion to the unanchoring of inflation expectations" and a higher willingness to accept demand destruction outside the energy sector. Even so, Rabobank noted that one more hike is well below the 3-4 additional hikes the markets are pricing.

MFS Investment Management's Benoit Anne argues markets may have gone too far. He said there is scope for some retracement and a possible relief rally in government bonds. His case is that the repricing has run ahead of what the Fed itself has signaled.

The ING note places Fed Chair Kevin Warsh's hawkish Jackson Hole speech last month among the pressures on bond markets.

Mortgages and housing

The 30-year fixed mortgage rate rose to 7.28% as of Oct. 1, from 7.03% a week earlier, Freddie Mac said. That was the largest weekly jump in four years and the highest since November 2023. A year ago the rate was 6.34%.

The housing market was already softening. Realtor.com's September report found pending sales down 4.1% from a year earlier. Active listings rose 5.4% to about 1.16 million. About 20.8% of listings had price cuts, the highest share for September since 2018.

The Mortgage Bankers Association said its composite application index fell 6% in the week ended Sept. 25.

France is the weak spot

French yields rose Friday to 4.854% from 4.795%. The German 10-year ticked up to 3.477%.

The worry is the budget. Investors doubt Paris can cut its deficit to 5% of GDP in 2027 with a fragmented parliament. Spending-cut plans have also triggered nationwide demonstrations. ING's James Smith wrote that France is fighting to keep the deficit from exceeding 6% of GDP next year, up from a projected 5.4% this year.

The supply is large. The French Treasury Agency penciled in 340 billion euros ($381.23 billion) of medium- and long-term issuance for 2027, net of buybacks, up from 310 billion this year.

Citi rates strategists Jamie Searle and Puja Sawant said hefty supply will likely keep selling pressure on French bonds and yields high. They flagged early 2027 as a particular concern.

Britain

The UK has had its own scare. ING's Smith wrote that 30-year gilt yields briefly hit 6%, the first G7 economy to reach that level since the euro crisis. He argues the UK looks better than France on one measure, the gap between 10-year gilt yields and swap rates, and that its deficit is set to fall to around 4% this year.

Chancellor John Healey delivers his first Budget on Oct. 28.

What comes next

The September consumer price index is due Wednesday, Oct. 14, and the Dow Jones report calls it one of the last relevant data points before the Fed's next meeting. France is scheduled to sell bonds again on Thursday, Oct. 15.

If CPI runs hot or the French auction goes poorly, this week's buyers will have to prove the floor holds.