US bond selloff resumes as 10- and 30-year yields hit fresh 24-year highs

US Treasuries came under renewed selling pressure on Wednesday, driving yields on the benchmark 10-year note and 30-year bond to fresh 24-year highs as a jump in oil prices above $100 reignited worries that inflation may prove more stubborn than expected.

Brent crude rose 1.1% to $101.69 per barrel as the market weighed supply constraints from a storm heading for US oil-producing regions and attacks by Yemen's Iran-backed Houthis on Saudi Arabia. US crude increased 1.34% to $90.64 a barrel.

In response, Treasury yields advanced. In late morning trading, the benchmark 10-year yield climbed 4.4 basis points (bps) to 5.316% after hitting a 24-year peak of 5.364%. US 30-year yields also touched a 24-year high and were last 5.5 bps higher at 5.696%.


On the shorter end of the curve, US 2-year yields, which reflect interest rate expectations, were down less than a basis point at 4.783% US2YT=RR. Rising yields suggest Treasury prices are lower.

"There were several headlines about tankers being attacked in the Strait of Hormuz, putting a little bit of pressure on oil this morning," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin. "It's day by day and as oil goes up or down, then the attitude towards inflation pressure moves accordingly."

US debt was also undermined by reports that Elon Musk's SpaceX, a rockets-to-AI firm, was seeking $40 billion in financing to fund purchases of Nvidia chips. According to the Financial Times report, the company is looking to raise about $10 billion in bank loans and $30 billion in investment grade debt for the chip order.

CROWDING OUT

If SpaceX enters the investment-grade bond market, it could revive concerns that large-scale corporate borrowing is competing with long-dated US Treasuries for investor capital, analysts said. A wave of debt issuance from hyperscalers has already added to supply pressures in a market grappling with heavy government borrowing needs and persistent inflation uncertainty.

"The amount of demand of private sector borrowing, particularly for long paper, but broadly across the curve has grown so significantly that it has created this crowding-out effect or competition for capital as well," Urano said.

Also on Wednesday, the US Treasury will sell $39 billion in reopened 10-year notes, with analysts at JPMorgan saying in a research note that the auction will be absorbed smoothly by the market. The 10-year yield has advanced 43 bps since the last auction last month.

The bank also pointed out that the 10-year note at current levels is undervalued.

"Given supportive valuations historically, fundamentally, and locally, we think the (10-year note) auction will likely be digested smoothly," JPMorgan said.

Minutes of the Federal Reserve's September meeting will also be released later on Wednesday, which will offer more clarity on how policymakers are interpreting the rise in long-term yields.

"If officials view higher long-term rates as sufficient tightening, expectations for another hike could stall even if Treasury yields remain elevated," Conversa wrote in a research note.

Elsewhere in the Treasury market, the yield curve steepened on Wednesday with the spread between two-year and 10-year yields widening to 52.2 bps from 48.1 bps. The curve had reached its steepest level since mid-August after long-dated yields rose more sharply than shorter-dated ones, a move known as a bear steepener.

A bear steepener reflects a pickup in inflation expectations.