Global bond sell-off deepens after US flash PMI shows activity at five-year high

Five-year Treasury yield crossed 5% for first time since 2007

A global bond sell-off deepened on September 24 as US government borrowing costs rose for a second consecutive session — a move that is pulling down share prices — following a flash business survey released the previous day that showed American activity expanding at the fastest pace in five years and stoking expectations the Federal Reserve will need to raise interest rates further. Five-year US Treasury yields crossed 5% in the previous session for the first time since 2007, and yields on Japan’s benchmark bonds hit their highest level in decades in early Asia-Pacific trading on September 24, according to The Guardian.

The flash September PMI release showed US new orders growing at the fastest rate since April 2022 and manufacturing hiring at the strongest since February 2021, according to The Guardian. The survey also recorded stretched supplier delivery times and elevated input costs driven by high energy prices and supply-chain pressures.

Yields on five-year US Treasuries breached 5% for the first time since 2007, according to The Guardian. The 10-year Treasury yield stood at 4.96% on September 24, per Federal Reserve H.15 data. The Guardian described the previous session’s jump in 10-year yields past 5% as the biggest one-day move since President Donald Trump’s “Liberation Day” tariff announcement almost 18 months earlier. These moves are rattling the wider global bond market (as US debt is the “risk-free” asset used as a benchmark by global financial markets), according to The Guardian.

Chris Weston, head of research at brokerage Pepperstone, told The Guardian the report amounted to signs of “modest overheating” in the US economy. “With unemployment at 4.1% and growth running above trend, the US economy is showing signs of modest overheating,” Weston said. “The Federal Reserve will therefore be firmly on notice.” He added that “if the next inflation readings continue to print hot, policymakers may conclude that aggregate demand needs to be brought lower through the blunt tool of higher interest rates.”

Ipek Ozkardeskaya, senior analyst at Swissquote, attributed the activity strength to “massive AI investment and resilient consumer spending” outweighing energy-price concerns, while noting that input costs remained elevated owing to high energy prices and supply-chain pressures. “In other words, economic activity expanded strongly while price pressures remained elevated,” Ozkardeskaya said. “That’s the perfect combination for fuelling further rate-hike expectations.”

A weak US five-year bond auction the previous evening attracted low demand, possibly a sign that appetite for Treasury bonds is waning, The Guardian reported. Yields on Japan’s benchmark bonds hit their highest level in decades in early Asia-Pacific trading on September 24.

Traders were watching several scheduled releases later in the day: the Confederation of British Industry’s distributive trades survey of UK retailers at 11am BST, the Swiss National Bank’s interest-rate decision at 8:30am BST, US weekly jobless claims data at 1:30pm BST, and a Bank of England speech by Clare Lombardelli at 3pm BST titled “Macroeconomic Policy in a Heterogeneous and Imperfectly Rational World.”