U.S. Treasury yields climbed to their highest levels in nearly two decades on Wednesday, driven by spiking oil prices and robust economic data. The benchmark 10-year Treasury yield rose as high as 5.087%, a level not seen since July 2007, according to CNBC. The 30-year Treasury yield also hit 5.389%, a peak not reached since before the global financial crisis, while the 2-year Treasury note yield jumped more than 10 basis points to 4.885%, its highest since June 2024.
Treasury Yields Surge to 2007 Levels Amid Energy Spikes
The surge in yields coincided with a jump in energy costs. European Brent oil rose above $101 per barrel and U.S. crude oil approached $92. These price increases are often linked to rising bond yields because higher energy costs can increase inflation. Markets had briefly seen optimism on Tuesday after President Donald Trump stated that U.S. officials were communicating with Iranian representatives at the U.N. General Assembly regarding the Iran war, which is now in its seventh month. However, that optimism faded following a social media update from U.S. special envoy Steve Witkoff, who noted that while talks were lengthy
, more work remained. Tensions were further heightened Wednesday morning when the U.K. maritime trade monitoring agency reported a cargo vessel was stuck by an unknown projectile
in the Strait of Hormuz, a critical energy chokepoint that has been at a near standstill for months due to the conflict.
Economic Data and Fed Rate Hike Concerns
Fresh economic reports contributed to the upward pressure on yields. S&P Global reported that U.S. business activity growth accelerated for a fourth successive month in September, reaching the fastest rate in over five years. The S&P Global services PMI rose to 58.7 in September from 56.5 in August, while the manufacturing PMI reached 56.7, a level not seen in more than four years.
Chris Williamson, chief business economist at S&P Global Market Intelligence, stated that business is clearly booming
in both sectors, but warned that input costs jumped at the steepest rate in four years.
These conditions have increased the likelihood of further action from the Federal Reserve, which raised its overnight benchmark rate by 25 basis points last week—its first increase in three years. Fed Governor Michael Barr stated that further rate hikes are likely necessary because risks to achieving inflation targets have increased. According to the CME Group’s FedWatch tool, the odds of another quarter-point rate increase in October rose to 73% on Wednesday, up from 55% on Tuesday.
Stock Market Decline and Sector Impact
U.S. stock markets fell as a result of the rising yields and oil prices. By midday Wednesday, the Nasdaq Composite tumbled 1%, the S&P 500 fell 0.6%, and the Dow Jones Industrial Average declined 270 points. The decline was most pronounced among inflation-sensitive stocks, including large technology firms and travel stocks.
The S&P utilities sector was the biggest loser on Wednesday. This sector includes many companies involved in building data centers, and higher interest rates could potentially add billions of dollars in costs to the construction of AI infrastructure. The real estate and consumer discretionary sectors also saw notable declines.
Diesel Export Proposals and Trade Outlook
Energy markets were further unsettled by President Trump’s comments on Tuesday regarding a potential ban on U.S. diesel fuel exports. I’ve said ‘Let’s not send out the diesel,’
Trump told reporters at the U.N. Following these remarks, benchmark diesel futures surged as much as 7% in European trade.
Industry leaders and officials warned against such a move. Energy Secretary Chris Wright stated Wednesday morning that the blunt tool of banning diesel exports definitely doesn’t work
. Additionally, the American Petroleum Institute warned that removing U.S. diesel from the market could lead to reduced refinery runs, global economic damage, and higher prices for Americans.
Investors are also monitoring the diplomatic front, specifically a meeting scheduled for September 23 to 25 between President Trump and Chinese President Xi Jinping in Washington. This marks Xi’s first state visit to the U.S. capital since 2015.