A PERFECT STORM IS RAGING IN THE BOND MARKET / THE WALL STREET JOURNAL

A Perfect Storm Is Raging in the Bond Market

The benchmark Treasury yield jumps above 5.1%, posting its biggest one-day rise in more than a year

By Jack Pitcher and Sam Goldfarb

The selloff in the U.S. bond market has been mostly orderly in recent weeks. 

Then came Wednesday.

In the morning, a normally unremarkable survey on business activity gave the market a jolt, pointing to surprisingly resilient growth and ongoing inflationary pressures in the economy. 

Then the selling compounded with each development during the day—fighting words from an Iranian official at the U.N., hawkish comments from a Federal Reserve governor and a weak auction of government bonds. 

It all added up to a perfect storm that drove the 10-year Treasury yield up by the most in a single session since President Trump’s ‘Liberation Day’ tariff rollout rattled markets in April 2025. 

The 10-year closed at 5.113%, blowing past the recent highs at levels unseen since 2007. 

From an intractable conflict in Iran to a seemingly indestructible U.S. economy, it just “doesn’t make sense to a lot of people to own bonds here,” said Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union. 

Government bond yields, which rise when bond prices fall, have been climbing for months, and their rise is already rippling throughout the economy, impacting everything from mortgage and credit card rates to private-equity firms’ willingness to make debt-fueled acquisitions. 

With the midterms fast approaching, Treasury Secretary Scott Bessent has sought to tamp yields down with a buyback program that appears to have done little to change the market’s momentum.

At the same time, the uptick in yields still doesn’t seem like it has done enough to broadly slow the economy. 

That has only caused yields to rise further, as investors bet that the Fed will have to raise rates even higher than previously anticipated to have any real success in bringing down inflation. 

The bad news for bonds started early on Wednesday, when oil prices spiked in European trading. 

Traders who had hoped for U.S.-Iran diplomacy during the ongoing United Nations General Assembly in New York were less-than thrilled with comments from Iran’s president, who said his country won’t fully open the Strait of Hormuz as long as sanctions remain in place.

Brent crude, the international oil benchmark, reversed recent declines to climb back above $103 a barrel at the day’s highs. 

Because a sustained increase in fuel prices could feed into broader inflation, bond yields have been moving closely in line with oil prices in recent months. 

The U.S. 10-year yield drifted higher early. 

Then, at 9:45 a.m. in New York, a monthly business survey that is rarely known for moving markets turned heads. 

Izaac Brook, U.S. rates strategist at RBC Capital Markets, was on a plane about to leave from New York to Minnesota when the headlines broke about the survey, known as the S&P Global Flash U.S. Composite PMI.

The report, based on a survey of services and manufacturing firms, showed businesses growing at the quickest pace in more than five years and the fastest job growth in more than four years. 

Brook got a quick glimpse of the market’s reaction—a sharp jump in yields on short and longer-duration bonds—before turning his phone onto airplane mode. 

When he arrived at his destination a few hours later, the strategist said he had “a million” messages from people asking what was happening. 

“It just is so hard for people to be constructive right now,” Brook said. 

“You can look at the levels and say these are really attractive. 

But we’ve been playing that game for the past six months, and every time we’ve tried to draw a line in the sand somewhere, it just keeps going.” 

The Fed last week raised interest rates for the first time in three years, and the market is anticipating further hikes. 

That sentiment got further fuel just after 10 a.m. when remarks by Fed governor Michael Barr hit the newswires.

“Inflation is above our 2% target and not clearly trending toward target in a timely way,” Barr said in a speech in Chicago. 

He noted that risks that could prevent the Fed achieving its inflation target have risen.

The concern among investors is that “the Fed is willing to hike to constrain inflation despite a lot of the pressures coming from supply shocks, which could mean unrelenting hawkishness,” said Dhiraj Narula, U.S. rates strategist at HSBC. 

The Treasury Building in Washington, D.C. Gent Shkullaku/ZUMA Press

Meanwhile, traders were waiting for the Treasury Department to announce the size of its planned bond buyback operation set for Thursday. 

That announcement came—$6 billion—but had little effect on the selloff.

Then at 1 p.m., the federal government’s auction of fresh 5-year Treasury notes was met with weak demand. 

The notes were sold at a yield well above what traders had anticipated, and bond dealers that are required to bid at auctions were forced to take down an unusually large share, pointing to a lack of interest from other potential buyers. 

Investors had little interest buying bonds right when their prices were tumbling. 

The poor result only caused more alarm, driving yields still higher.

All in, it was the worst day in nearly 18 months for U.S. government bonds. 

Major stock indexes also slipped, but not as far as some traders might have expected on a day when debt benchmarks that affect rates on everything from corporate bonds to mortgages soared. 

The S&P 500 dropped 0.8%, the Nasdaq composite retreated 1.1% and the Dow industrials fell 0.7%, or 352 points.

 “Risk markets seem to be handling this fairly well. 

It really seems to be a rate market problem,” said Scott Kimball, chief investment officer for fixed income at Loop Capital Asset Management.

Jack Pitcher is a reporter in New York covering financial markets and the asset management industry for The Wall Street Journal. Jack reports on investment companies like BlackRock and Vanguard that collectively manage trillions in client assets. He also writes about market trends, focusing on U.S. stocks and exchange-traded funds.

Sam Goldfarb is a markets reporter for The Wall Street Journal based in New York. He spends much of his time writing about U.S. government bonds, exploring how they are influenced by trends in inflation, economic growth and Federal Reserve policy and how they in turn affect the broader financial market.