The US bond market is witnessing a sharp sell-off on Wednesday, with Treasury yields rising. The 10-year US Treasury yield extended its morning gains to 5.214%, up around 1%, while the 30-year Treasury yield climbed 0.90% to 5.544%. It had earlier crossed 5.6%, reaching its highest level since June 2002, when it touched 5.644%.
US Treasuries remained in focus after yields on the longest-dated government bonds climbed to their highest levels since 2002 during the New York session. Yields subsequently stabilised across maturities after rising earlier in the week, as a surge in oil prices led traders to factor in the possibility of additional interest-rate hikes by the Federal Reserve.
Key factors behind rising US Treasury bond yields –
US bond yields are rising due to a combination of higher-for-longer Fed rate expectations, elevated oil-driven inflation risks, heavy government borrowing and resilient economic growth amid a massive AI investment cycle.
1] Fed rate hike
Stronger-than-expected US economic activity and persistent inflation are making markets expect the Federal Reserve to keep rates elevated, or potentially hike again. This pushes short- and long-term Treasury yields higher.
Markets are now pricing in a more than 72% probability of another Fed rate hike at the central bank’s October meeting, according to the CME FedWatch tool. The expectations follow the Federal Open Market Committee’s unanimous 12-0 decision earlier this month to raise the benchmark interest rate by 25 basis points.
2] Rising crude oil prices
According experts, the rise in oil prices amid Middle East tensions is raising concerns about a fresh inflationary shock. Higher energy costs could make it harder for the Fed to ease monetary policy, lifting bond yields.
According to an Al Jazeera report, the US and Iran engaged in separate discussions with mediators as part of efforts to find a resolution to the ongoing conflict in the Middle East.
3] AI-related capital demand
According to Seema Srivastava, Senior Research Analyst at SMC Global Securities, trillions in debt-funded AI infrastructure by tech giants—coupled with heavy US fiscal deficits—have intensified global competition for capital, pushing benchmark US 10-year Treasury yields past 5%.
What does rising US Treasuries bonds mean for Indian stock market?
When bond yields rise, equities tend to come under pressure as fixed-income investments become relatively more attractive. Conversely, when bond yields decline, equity markets can benefit as investors look for higher returns in risk assets.
“With the US government increasing borrowing and bond issuance, yields are likely to remain elevated. This is a negative factor for Indian equities as well, as foreign institutional investors may find US fixed-income assets more attractive and could allocate less capital towards emerging-market equities. Therefore, sustained higher bond yields could weigh on the Sensex and Nifty,” said Avinash Gorakshakar Founder & Head Research Avinash Mentor Research.
Meanwhile, Sugandha Sachdeva, Founder of SS WealthStreet, highlighted when investors can earn a higher return on US government debt, they often demand a greater return to hold emerging-market equities. That can encourage foreign investors to reduce exposure to India, particularly when valuations leave limited room for earnings disappointments.
She further explained that the pressure is amplified by high crude prices and a weaker rupee. As a major oil importer, India faces a higher import bill when crude rises, adding to inflation concerns and pressure on the currency. For a foreign investor, rupee depreciation can erode returns when converted back into dollars. Selling by foreign investors can then put further pressure on both equities and the currency.
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