U.S. Treasury yields reached their highest level in over two decades on Thursday as a global bond sell-off intensified. The 10-year Treasury yield increased by 4 basis points to 5.3338%, a level not seen since April 2002, according to LSEG data. This yield is significant as it influences rates for mortgage borrowing, auto loans, and credit card debt.
The yield on the 30-year Treasury bond rose by 3 basis points to 5.6702%, marking its highest point since July 2002. The 2-year yield increased by 2 basis points to 4.91%. Yields and prices have an inverse relationship, with one basis point equating to 0.01%.
Government borrowing costs have increased globally, continuing a trend observed over several months. Investors are expressing concerns regarding insufficient political action to address fiscal deficits, alongside persistent inflation and rising interest rates. The Institute of International Finance noted last week that major economies are facing "persistently large deficits and rising interest expenses — challenges long associated with debt-distressed emerging market sovereigns."
In Japan, the 10-year yield reached 3.126%, the highest level in three decades, influenced by a weaker yen and rate hikes by the Bank of Japan. The yield on the German 10-year bund, a benchmark for the euro area, increased by 4 basis points to 3.6179%, its highest since 2008. In Europe, the French 10-year yield rose by 11 basis points to 4.9501%, Italy's 10-year yield increased by 10 basis points to 4.7171%, and the U.K.'s 10-year yield was up by 5 basis points to 5.483%.
Bonds are increasingly correlating with oil prices, which have been volatile due to geopolitical tensions, including the U.S. and Israel's conflict with Iran affecting crude exports from the Middle East. On Thursday, crude oil prices rose, with the international benchmark Brent Crude surpassing $100 a barrel.
Nomi Prins, founder of Prinsights Global, stated on CNBC's "Squawk Box Europe" that bond buyers might enter the market to take advantage of the yields, potentially causing them to decrease. However, she noted that sovereign wealth funds and central banks, which are primary long-term holders of Treasury debt, are unlikely to do so. Prins added that Treasury yields could decline if oil prices significantly decrease or if there is a resolution in the Middle East.