NEW YORK — Government bond yields are climbing simultaneously across the Group of Seven, not just in the United States, as fiscal conditions in major advanced economies continue to deteriorate. Yet ahead of the Federal Reserve's rate decision this month, expectations are building that the central bank will pause its tightening, after several Fed officials urged caution and September employment data came in sharply weaker.
The yield on the 10-year U.S. Treasury note, the global bond market's benchmark, climbed as high as 5.345% during trading on the 1st, the highest level since April 2002. The 30-year yield, which serves as a reference for mortgage rates, rose to 5.694%, approaching 5.7% for the first time since November 2001.
With U.S. yields showing no sign of easing, the Treasury Department filled its $6 billion buyback cap for the first time since expanding the program last month. The Treasury said it received $46.39 billion in offers to sell in a buyback covering notes and bonds maturing in 10 to 20 years, and purchased $6 billion of them.
The surge spread to Europe and Japan. Britain's 30-year gilt yield rose as high as 6.020%, the highest since 1998. It is the first time a G7 long-dated yield has exceeded 6% since Italian bonds did so in 2012 during the European debt crisis.
France's 10-year yield, pressured by fiscal concerns, rose to 4.963%, its highest since 2002. The spread over German bunds widened to 1.4 percentage points, the widest since the European debt crisis. The Wall Street Journal reported that Italian and Greek yields also jumped as hedge funds unwound arbitrage positions in European bonds all at once. In Japan, where the 10-year yield topped 3% last month for the first time in 30 years, the Finance Ministry projected that government interest costs on its debt would triple if long-term rates rose to 4%.
The global rise in yields reflects entrenched pressures: a growing supply of bonds tied to fiscal deficits, rising corporate borrowing for artificial intelligence infrastructure, and inflation stemming from higher crude oil prices. Inflation in the euro zone, the 21 countries using the euro, ran at 3.8% year-on-year last month, the largest increase in three years since September 2023, when it reached 4.3%.
Despite the market's tightening bias, many Fed officials maintain that caution is warranted on a rate increase this month. Fed Vice Chair Philip Jefferson said on the same day that policymakers should carefully examine data trends and the shifting outlook as they adjust policy going forward. Michelle Bowman, the Fed's vice chair for supervision, stressed the same day that she does not see additional action as urgent at this point.
Employment data released on the 2nd also raised the likelihood that the Fed will slow the pace of rate increases. U.S. nonfarm payrolls grew by 29,000 in September, less than a third of the 90,000 forecast. The unemployment rate for the month was 4.2%, above the 4.1% expected.
