US Treasuries resumed their retreat, lifting the 30-year yield back to its highest since 2002 as climbing oil prices raised concern about faster inflation and more central bank interest-rate increases.
The moves in US debt markets trickled into Europe, helping send UK 30-year gilt yields back to 6% and equivalent French yields up as much as 14 basis points. The US 30-year yield was at 5.72%.
Ballooning government deficits and the energy-price spike from continued fighting in the Middle East have hoisted sovereign yields to their highest levels in decades. On Wednesday, fresh attacks by Iran on vessels in the Strait of Hormuz pushed Brent past $102 a barrel , eclipsing arguments from some investors that bond declines are overdone and yields look appealing.
“We continue to think the market remains caught between attractive outright yield levels and an oil story that refuses to fade,” said Evelyne Gomez-Liechti, Mizuho International Plc multi-asset strategist.
Swaps markets now show a 24% chance of a rate hike from the Federal Reserve this month, with a hike fully priced by the end of the year.
Traders extended their short bets against US government bonds, signaling that the selloff may have further to run.
Much of the latest move has been driven by a higher term premium — the extra yield investors demand to hold long-term bonds — which has climbed since the Federal Reserve’s September meeting. The term premium on 30-year Treasuries was at its highest level since 2011 as of Tuesday, according to Bloomberg Economics data.
“The bond bear market since the start of the year is primarily a story of central bank repricing,” said Bank of America rates strategist Ralf Preusser.