A significant global bond sell-off is continuing, driven by concerns that the US economy may be overheating and inflation pressures remain elevated. This has led to increased speculation about further interest rate hikes by the US Federal Reserve.
Financial markets now anticipate at least one more US interest rate increase this year. According to CME Fedwatch, there is a 55% chance that US rates will be half a percentage point higher by the end of December, implying two quarter-point rises or one larger hike. Futures markets this morning indicate a 71% probability of a Fed rate hike at the upcoming October meeting.
Yesterday saw the 10-year Treasury yield experience its largest jump since April 2025, following strong US business surveys and a rebound in oil prices. This prompted a sell-off in US government bonds, with the yield on five-year US Treasuries climbing above 5% for the first time since 2007. Ten-year US Treasury yields also surged over 5%.
Flash PMI figures for September showed US economic activity expanding at its fastest pace in over five years, with new orders growing rapidly and manufacturing hiring at its strongest since February 2021. Despite massive AI investment and resilient consumer spending, input costs remained high due to energy prices and supply-chain pressures, contributing to expectations of further rate hikes.