The bond market had another difficult week.
The US 10-year Treasury yield climbed to around 5.2% this week, while the 30-year yield touched 5.5%, taking the two benchmarks to their highest levels since 2007 and 2004, respectively.
The selloff has extended well beyond the US.
Yields have also risen across major developed markets as higher energy prices and stronger economic data weigh on expectations for monetary easing.
The latest move has also rattled equities. US stocks had fallen for three straight sessions through Thursday, with Wednesday’s decline particularly sharp before the selling continued at a more moderate pace a day later.
Technology stocks have also come under pressure, as higher bond yields increase the discount rate applied to future earnings, weighing particularly on long-duration growth stocks.
The concern is not simply that yields are high. It is the speed and breadth of the repricing.
A September 24 note from Rabobank highlighted the latest move across global bond markets.
It pointed to sharp increases in yields in the US, Canada, the UK, Australia, Germany, France and Japan.
At the time of Rabobank’s September 24 note, the US 10-year yield had risen to 5.11% from 4.93% the previous day.
Stronger economic data have made the selloff harder to reverse.
Rabobank pointed to eurozone services activity coming in slightly above expectations, while US manufacturing and services PMIs jumped to 57.0 and 58.7, respectively.
That matters because resilient growth reduces the pressure on central banks to cut rates.
At the same time, Brent crude has moved back above $100 a barrel as the Middle East conflict continues to disrupt the energy outlook.
The result is a bond market being forced to price a more difficult combination: higher energy costs, persistent inflation risks, stronger-than-expected growth and the possibility of further rate hikes.
Why are bond yields rising so sharply?
Rabobank’s September 24 research helps explain why the latest move has gathered pace.
The stronger economic data are an important part of the story.
Rabobank noted that seven months of conflict and high energy prices had not materially dented growth, leaving investors with less reason to expect rate cuts.
Instead, economic activity has remained resilient. That makes the inflation problem more difficult for bond investors.
Higher oil prices are already lifting headline inflation. If those higher costs feed through into wages and other prices, inflation could prove more persistent, leaving central banks with less room to ease policy.
Rabobank also highlighted a series of geopolitical risks that could put further pressure on energy markets, including the continuing conflict in the Middle East and uncertainty around energy supplies.
J.P. Morgan Asset Management’s September 22 Global Fixed Income Views offers a different but complementary explanation for the bond-market move.
It argues that concerns about central-bank credibility were a major driver of higher real yields before policymakers began responding more decisively to the energy shock.
Investors had become frustrated by what JPMAM described as delays in mounting a meaningful policy response to higher energy prices, raising fears of a repeat of the 2022–23 hiking cycle.
That changed when the European Central Bank raised rates on September 10, and the Federal Reserve followed with a hike on September 16.
JPMAM argues those moves have helped reassure investors that central banks remain willing to respond to renewed inflation pressure.
JPMAM said those moves had helped stabilize the long end of government bond markets, although yields subsequently moved sharply higher again.
BlackRock’s September 21 weekly commentary adds a longer-term explanation.
It argues that the bond market is also dealing with increasingly intense competition for capital.
Heavy government borrowing is occurring at the same time as companies are seeking more financing for artificial intelligence and other large investment projects.
“Heavy government borrowing and the AI buildout are intensifying competition for capital,” analysts at BlackRock said in a note.
BlackRock estimates annual US financing demand could exceed $7.5 trillion by 2030, driven mainly by the AI buildout.
It also estimates that AI and data-centre companies account for about 14% of US investment-grade bond issuance this year, up from 5% in 2025 and 1% during the previous decade.
In other words, even if the immediate inflation shock fades, there are structural reasons why borrowing costs may remain higher than they were in the years following the financial crisis.
What would it take to calm the bond market?
The most immediate answer is simpler: oil prices need to come down.
“The next thing the bond market would need to see to help lower government borrowing yields would be a geopolitical resolution in the Middle East that would ease energy costs,” JPMAM said in the note.
That is not a small assumption. The conflict remains unresolved, and JPMAM notes that most military strategists expect it to continue for some time.
But the potential market impact is significant.
JPMAM estimates that if a geopolitical resolution were to push oil down to $70–$80 a barrel, global bond yields could retrace by one-third to one-half of their recent selloff.
That would help on two fronts. Lower energy prices would ease inflation pressures, while reducing fears that central banks need to keep raising rates.
JPMAM expects central banks to hike rates a couple more times before allowing economic data to determine the next move.
“A Fed hiking cycle of 50–75 basis points would be minor by historical standards,” the analysts added.
Crucially, JPMAM says the market has already priced in that move, and more.
JPMAM says that would leave room for the 10-year Treasury yield to retrace toward 4.5%–4.75% if the rate outlook becomes less aggressive.
That is where the economic data become important.
Rabobank’s latest research shows why a sustained bond-market recovery may be difficult if growth continues to surprise on the upside.
Stronger activity reduces the urgency for rate cuts and makes it easier for central banks to keep policy restrictive.
A weaker growth picture would change that equation.
If economic activity starts to lose momentum while energy prices also retreat, investors would have less reason to expect additional rate hikes.
That would reduce pressure on both short- and long-term government yields.
Even if the immediate inflation shock fades, BlackRock sees another force keeping yields elevated: competition for capital.
BlackRock argues that higher yields driven by resilient growth, investment demand and central banks maintaining their credibility can coexist with a relatively constructive economic backdrop.
A rise in yields increasingly driven by inflation fears or doubts about monetary-policy credibility could push up the term premium — the extra compensation investors demand to hold longer-term government debt — and make the rise in yields harder to contain.
For now, BlackRock says the increase in yields has mostly reflected higher real rates and expectations for tighter monetary policy rather than a sharp rise in that term premium.
That leaves the bond market with two very different paths.
In the first, energy prices fall, geopolitical tensions ease, and economic data eventually slow.
Central banks can then stop hiking, inflation pressures moderate, and bond yields retrace part of their recent rise.
In the second, oil remains above $100, growth stays firm, and inflation proves sticky.
Central banks remain restrictive for longer, while heavy government borrowing and strong investment demand continue competing for capital.
The research from JPMAM, Rabobank and BlackRock suggests that calmer bonds do not necessarily require a recession.
But it would likely require some combination of lower energy prices, softer economic data and continued confidence that central banks can keep inflation under control.
The bigger question is whether this week’s surge marks the final leg of a sharp repricing or the start of a more persistent shift toward a higher-cost borrowing environment.
This post Why bond yields are surging and what could calm them may be modified as updates unfold
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