US Treasury Bonds: Yields Reach Highest Level Since 2002

Yields on 30-year U.S. Treasury bonds have once again risen to their highest level since 2002 amid rising oil prices, heightening concerns about accelerating inflation and further rate hikes by central banks. The yield on 30-year bonds increased by 6 basis points to 5.72%, the benchmark 10-year yield rose to 5.35%, and similar French yields added up to 14 basis points. Movements in the U.S. debt market have spilled over into Europe, bringing the yield on 30-year British gilts back to 6%.

Growing budget deficits and a surge in energy prices due to ongoing conflicts in the Middle East have pushed sovereign bond yields to multi-decade highs. On Wednesday, Brent briefly exceeded $102 per barrel, outweighing arguments from some investors that the decline in bonds has gone too far and yields appear attractive. "We continue to believe that the market remains between attractive absolute yield levels and an oil story that refuses to fade," said Evelyn Gomez-Liechti, multi-asset strategist at Mizuho International.

The swap market now implies about a one-in-four chance of an interest rate hike by the Fed this month, with a full hike priced in by the end of the year. Traders are increasing short positions against U.S. government bonds, signaling that the sell-off may continue. A significant part of the movement is explained by a higher term premium, which has been rising since the Fed's September meeting. According to Bloomberg Economics, the term premium on 30-year bonds was at its highest since 2011 as of Tuesday. "The bond bear market since the start of the year is primarily a story of central bank repricing," said Ralph Preusser, Bank of America's rates strategist. Sentiment was also supported by the upcoming auction of $39 billion in 10-year bonds, scheduled for 1:00 PM New York time, following a successful sale of three-year bonds on Tuesday.