U.S. Treasury yields climbed further on Thursday, with the benchmark 10-year yield approaching levels last seen more than two decades ago as investors absorbed a Federal Reserve warning that interest rates may need to rise again to contain persistent inflation.
The move higher in borrowing costs came ahead of a closely watched $22 billion auction of 30-year Treasury bonds, with investors looking for evidence that demand for long-dated U.S. debt remains strong even as yields rise and concerns over government deficits intensify.
The 10-year Treasury yield rose 4 basis points to 5.322%, after touching its highest level since 2002 on Wednesday before retreating later in the session. The 30-year yield increased more than 4 basis points to 5.705%, after trading just below a 24-year high in the previous session. The 2-year Treasury yield, which is particularly sensitive to expectations for monetary policy, rose nearly 3 basis points to 4.793%.
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A basis point is one-hundredth of a percentage point. Bond prices and yields move in opposite directions, meaning the latest moves indicate continued selling pressure across the Treasury market.
The immediate catalyst was the Federal Reserve’s latest meeting minutes, which showed policymakers expected another interest-rate increase before the end of the year to prevent inflation from becoming entrenched. Markets nevertheless expect the Fed to leave rates unchanged at its October 28 meeting, with investors assigning a substantially higher probability to another increase at the December 9 meeting.
Fed Governor Christopher Waller reinforced the hawkish message on Thursday, arguing that additional rate increases are needed to bring inflation back toward the central bank’s 2% target after roughly five and a half years of inflation remaining above that objective.
Waller, however, indicated that the Fed does not necessarily need to raise rates at every meeting.
“The hikes do not need to come at consecutive meetings,” Waller told a Central Bank of Turkey forum in Istanbul. “But they should be in place in an acceptable period of time.”
The Fed is signaling that policy may need to become tighter, but it is not necessarily committing to an uninterrupted sequence of rate increases. For Treasury investors, however, the prospect of rates remaining elevated for longer is enough to keep pressure on longer-dated bonds, particularly as the market reassesses how much compensation investors require to hold U.S. government debt.
Long-Term Treasury Demand Faces A Crucial Test
The Treasury’s $22 billion 30-year bond sale on Thursday represents the final major test of demand this week after auctions of shorter-dated securities.
On Wednesday, the Treasury sold $39 billion of 10-year notes, with global central banks accounting for more than 80% of the auction. That compared with an average of 72.4% for such auctions, providing an important source of support for the market despite the unusually high yield.
The Treasury also sold $58 billion of three-year notes on Tuesday.
“The 10-year auction has set the tone for the Treasury market – at least for the moment,” BMO Capital Markets’ Ian Lyngen said in a note late Wednesday.
Lyngen noted that the scale of the Treasury selloff between the September reopening and Wednesday’s auction might ordinarily have discouraged investors from bidding aggressively. Instead, the auction attracted strong sponsorship, even though it offered the highest yield on a 10-year Treasury auction since November 2000.
The focus now turns to whether that demand extends further along the yield curve.
Lyngen described Thursday’s long-bond auction as “the next barometer of demand for US debt in an environment of global deficit angst.”
That makes the auction more significant than a routine financing operation. Analysts say the U.S. government must now continue issuing large quantities of debt, while investors are demanding higher yields to absorb that supply. If demand remains firm even at elevated yields, the Treasury market could stabilize. If demand weakens materially, yields could rise further as the government has to offer greater returns to attract buyers.
The pressure is of the essence at the long end of the curve because 30-year yields incorporate not only expectations for near-term Fed policy but also longer-term inflation, economic growth, government borrowing and the compensation investors require for holding long-duration debt. The market will also receive the latest weekly initial jobless claims on Thursday and preliminary October consumer sentiment data from the University of Michigan on Friday, providing additional clues about the strength of the economy and the potential persistence of inflation.
Dollar Strengthens As Global Bond Selloff Widens
The Treasury selloff is also feeding directly into currency markets. The dollar moved toward its strongest level in 18 months on Thursday after the Fed minutes reinforced the view that inflation remains the central bank’s principal concern. Rising oil prices have added another complication by increasing the risk of renewed price pressures, while higher euro zone bond yields have weighed on the euro.
The dollar index rose 0.1% to 102.32 after gaining 0.3% on Wednesday. It remained only a few pips from its strongest level since April 9, 2025, when markets were still reacting to President Donald Trump’s so-called Liberation Day tariff announcement.
The euro fell slightly to $1.1191, close to its lowest level in 17 months.
The weakness of the European currency is not simply a reflection of dollar strength. Investors are increasingly concerned about fiscal and political conditions in France, where government bonds have come under pressure ahead of next year’s presidential election.
The spread between German and French 10-year government bond yields widened by 4 basis points on Thursday, reflecting a rising risk premium for French debt.
“If you look at euro-dollar, it’s not only about dollar strength but euro weakness coming from the political situation in France,” said Tommy von Brömsen, FX strategist at Handelsbanken.
That perspective matters because the global bond selloff is increasingly becoming a currency-market story. Higher U.S. yields make dollar-denominated assets more attractive, while fiscal concerns in Europe undermine demand for the euro. The result is a reinforcing cycle in which bond-market weakness contributes to currency weakness, particularly for economies facing greater fiscal uncertainty.
The dollar rose 0.1% against the yen to 158.22, reversing a brief decline following data showing that Japan’s current-account surplus reached 4.062 trillion yen ($25.7 billion) in August, above economists’ median forecast of 3.19 trillion yen.
The Australian dollar fell 0.1% to $0.6953, while the New Zealand dollar slipped 0.1% to $0.5592. The dollar was broadly unchanged against the offshore Chinese yuan at 6.7030.
Gold Caught Between Inflation Fears and Higher Yields
Gold, meanwhile, managed a modest recovery after suffering its sharpest pressure in weeks. Spot gold rose 0.3% to $4,122.99 an ounce by 0916 GMT after falling to its lowest level since August 5 on Wednesday. U.S. gold futures for December delivery gained 0.18% to $4,147.90.
The recovery came despite an increasingly difficult macroeconomic backdrop for the metal. A stronger dollar and higher Treasury yields raise the opportunity cost of holding gold because the metal generates no income.
The Fed minutes showed policymakers were divided over the case for another rate increase. Some officials believed higher rates were necessary to prevent energy and other price shocks from feeding into inflation, while a more hawkish group viewed further tightening as necessary to guard against emerging demand-driven inflation.
Markets currently assign only a 21.6% probability to an October rate increase but price in an 85% probability of a December hike, according to CME’s FedWatch tool.
“Prices are wobbling above $4,100 as geopolitics stoke inflation fears and year-end Fed hike bets,” said Lukman Otunuga, senior research analyst at FXTM.
He warned that a stronger dollar and higher Treasury yields could place further pressure on gold. Technically, he identified $4,100 as an important threshold, saying a sustained break below that level could expose the metal to $4,000, while holding above it could allow a rebound toward $4,200.
The conflicting forces are increasingly impacting gold. Geopolitical tensions and higher energy prices support demand for the metal as an inflation and uncertainty hedge, but the same inflation pressures can produce a more restrictive Fed, higher bond yields and a stronger dollar, all of which undermine gold’s appeal.
The latest shipping data add another layer to that tension. The number of vessels transiting the Strait of Hormuz fell to its lowest level in more than two months after attacks on tankers in the strategic waterway reached their highest level last week since the start of the Middle East war. Any sustained disruption to energy flows could intensify concerns about another inflationary shock.
Other precious metals were mixed. Spot silver fell 2.2% to $58.8476 an ounce, while platinum rose 1.6% to $1,656.88 and palladium gained 0.8% to $1,133.65.
Taken together, the moves across Treasuries, currencies and precious metals show that markets are increasingly pricing a less forgiving monetary environment. The Fed is keeping the door open to further tightening, Treasury yields are testing levels not seen in decades, and the dollar is benefiting from the resulting yield advantage.
However, there is a growing concern about the chances of these moves to remain orderly or begin to reinforce one another. Higher Treasury yields can strengthen the dollar, a stronger dollar can pressure commodities, and elevated borrowing costs can expose fiscal vulnerabilities in other major economies. At the same time, higher energy prices could keep inflation risks alive and force central banks to maintain restrictive policies for longer.