The recent surge in Treasury yields has sent a warning signal to the stock market, triggering a sell-off in global bonds. On Friday, the 30-year Treasury yield rose by 10 basis points to reach 5.12%, marking its highest level since June 2007. Similarly, the 10-year benchmark yield climbed 11 basis points to 4.57%, its highest level since May 2025. This increase in bond yields indicates a decrease in bond prices, as they move in opposite directions.
Both bonds surpassed key psychological levels of 5% and 4.5%, respectively, suggesting a tightening of financial conditions. The 5% threshold for the long bond is considered a danger zone that has historically impacted financial markets. Concerns about rising inflation and a hawkish Federal Reserve policy were identified as the driving forces behind the bond market’s movements on Friday.
The fears of inflation were further exacerbated by two recent reports indicating higher-than-expected inflation rates. The Consumer Price Index revealed a 3.8% year-over-year increase in consumer inflation for April, primarily driven by surging energy costs. Additionally, the Producer Price Index showed a 6% annual rise in wholesale prices, adding to concerns about inflationary pressures.
President Trump’s visit to China to discuss the Iran war and the Strait of Hormuz failed to yield a major breakthrough, intensifying worries about inflation. The lack of concrete agreements on resolving the war resulted in an increase in oil prices as Trump departed Beijing without a resolution.
These developments have raised the likelihood that the Federal Reserve will maintain or even consider raising interest rates, rather than lowering them this year. Traders have priced in a near-certainty that the Fed will keep rates steady at its upcoming meeting in June, with a nearly 50% chance of rate hikes by the end of the year.
The bond market turmoil was not limited to the US, as global bonds experienced a sell-off as well. Japan’s 30-year yield reached 4%, while the 10-year UK government bond yield hit 5.14%.
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