Global financial markets experienced severe volatility on Thursday as U.S. long-term borrowing costs surged to their highest levels in nearly two decades, triggering a massive sell-off in the global bond market. Meanwhile, escalating geopolitical tensions in the Middle East drove international oil prices sharply higher, further exacerbating market risk aversion and inflation concerns, ultimately resulting in a dual sell-off in both stocks and bonds.
In the bond market, U.S. long-term Treasury yields climbed significantly. The yield on the 10-year U.S. Treasury note, a key global interest rate benchmark, rose 11 basis points to 4.95%, approaching the critical psychological threshold of 5%. The 30-year Treasury yield, which is more sensitive to long-term interest rates, surged 8 basis points to 5.37% at one point, hitting its highest level since 2007. Additionally, the U.S. Treasury completed a $22 billion auction of 30-year bonds on the same day, with the winning yield reaching 5.308%. This was not only higher than last month's 5.216% but also marked the highest financing cost since 2001. Short-term rates also faced pressure, with the 2-year Treasury yield jumping 16 basis points to 4.58%.
The surge in U.S. Treasury yields is driven by a combination of fiscal pressures and supply-demand dynamics. The U.S. Treasury's first bond buyback operation of the day was originally planned to purchase $6 billion but ultimately accepted only $5.2 billion in sell offers, falling short of expectations and frustrating efforts to stabilize the market through buybacks. Compounding this was the previously announced plan to distribute a $5,000 cash handout to adult U.S. citizens, a program expected to cost over a trillion dollars, which has continuously heightened investors' concerns over the widening U.S. fiscal deficit.
Beyond fiscal disruptions, severe volatility in the energy market has emerged as another core factor pushing up bond yields. Driven by the escalation of the Middle East conflict and a substantial drop in Saudi crude oil production, international oil prices have surged to their highest point in nearly four months. The international benchmark Brent crude oil skyrocketed over 6% in a single day, closing at $107.63 per barrel, and further touched $109 per barrel in after-hours trading. U.S. WTI crude oil recorded a similar gain. Saudi Arabia's daily crude oil production in August plummeted by 23% month-on-month, falling to a multi-year low, prompting the market to reassess the long-term risks to global energy supply.
The sustained surge in oil prices has directly altered market expectations for inflation and monetary policy. The U.S. Producer Price Index in August rose 5.4% year-on-year, exceeding both market expectations and the previous value, indicating that rising fuel costs are reigniting inflationary pressures. Against this backdrop, traders have significantly increased their bets on further interest rate hikes by the Federal Reserve, with the market beginning to price in expectations of interest rates remaining high for an extended period.
Dragged down by the massive sell-off in the bond market, global stock markets declined in tandem. The U.S. S&P 500 and Nasdaq 100 indices fell 0.6% and 0.9%, respectively, while Europe's Stoxx 600 index dropped 0.7%. Global financial markets are currently grappling with a complex mix of high oil prices, resurging inflation, expanding fiscal deficits, and a high-interest-rate environment. The subsequent trend of U.S. Treasury yields and fluctuations in the energy market continue to capture investors' attention.
