US 10-year yield jumps to 5.34% as global bond rout pushes borrowing costs higher

Bonds across the world were under heavy selling once again on Thursday, thus sending borrower costs in countries like the US, Japan, France, and Japan to highs that were not reached in decades, and thus underscoring the growing concerns of policymakers.

Bargain hunters helped the market stabilise by stepping in during the late US morning, Reuters reported. The benchmark yield of the US retreated to 5.26% while Treasury yields across the curve declined. However, analysts said that there could still be scope for more reselling, Reuters reported.

Financing costs of companies and mortgage borrowers are raised when rates are higher, thus forcing the government to spend more money on paying interests.

Bond yields, which tend to rise once prices fall, have soared across the world as energy costs keep rising and in turn surge inflation. With the artificial intelligence boom as well constructions of data centres, competition for capital has increased, thus raising expectations about economic growth and where short-term interest rates will settle.

The main yardstick for global borrowing costs and asset prices, the US 10-year Tresury yield, earlier jumped to 5.34%, which was its highest since 2002, after it posted the biggest quarterly rise in yields in the 21st century for the three months that ended in September.

Danny Zaid, portfolio manager at TwentyFour Asset Management in New York, told Reuters, "As yields have crept higher, that is going to tighten financial conditions and could increase the risk of a slowdown," adding, "But fundamentals right now -- the broader economy -- still look very strong even though we do know that we have a K-shaped economy and the lower cohort has been suffering for quite some time and there is need for relief from higher oil prices."

Why is France in focus?

France's government presented its 2027 budget bill on Thursday as it sought to enact belt-tightening measures that can lower its deficit and appease bond investors ahead of its presidential election next year.

France's benchmark 10-year borrowing costs rose to 4.96% on Thursday, the highest level since July 2002 and close to 5% as investors question the government's ability to rein in its deficit and fret over political uncertainty heading into ​the election.

Global pressure

The Washington-based Institute of International Finance recently estimated that over the past year, advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds alone — more than the estimated $2.6 trillion of global spending on AI, $3.1 trillion on defence or $2.3 trillion on clean energy.

With Reuters inputs