The continuous rise in US Treasury bond yields has driven up other interest rates such as mortgage rates, with US Treasury Secretary Scott Bessent responding to this trend by stating that the increase in bond yields reflects a global trend.
Bessent emphasized in an interview with Axios on October 3 that the current rise in Treasury bond yields is not unique to the United States, and there are no signs of selling off US bonds and switching to German or Japanese bonds in the market.
Making a clear distinction between “systematic increase” and “abnormal increase,” Bessent stated, “If there was a specific abnormal increase, I would be worried, but we have not seen this situation.”
He also admitted, “I cannot control the bond market, all I can do is to urge people to slow down and think calmly.”
The soft non-farm payroll data released on October 2 provided some relief to the bond market, but prior to this, US bonds had been facing months of sell-offs, causing the 10-year Treasury bond yield to temporarily rise to its highest level since 2002.
Bessent attributed part of the current bond market situation to the rise in energy prices due to the Iran war and expects that as the war enters its eighth month, the energy impact will eventually diminish, leading to “more abundant oil supply.”
On the economic front, he believes that the external impact of the Iran war highlights the inherent resilience of the US economy, with strong consumer spending and median wage growth largely keeping pace with inflation.
Japan’s 10-year Treasury bond yield has surpassed 3%, marking the first time since 1996 that this level has been breached, and the first time this century that it has hit 3%. In the same period last year, this yield was only half of what it is now, showing the significant changes reshaping the Japanese bond market in just one year.
For Japan, where long-term benchmark borrowing costs have been hovering near zero, the milestone of the 10-year yield reaching 3% carries symbolic significance. As the yield crosses this threshold, the market is beginning to reassess Japan’s fiscal resilience, the central bank’s path to raising interest rates, and the impact of Japanese funds on overseas bond markets. Some economists and traders warn that a 10-year bond yield exceeding 3% could trigger greater market skepticism about Japan’s fiscal control capabilities.
France’s bond yields are also soaring. A Bloomberg report on October 2 suggests that this is putting increasing pressure on the European Central Bank to take action. The premium that investors demand for holding French bonds compared to German bonds of the same maturity has risen to its highest level since the European debt crisis, leading to growing speculation in the market about the extent to which the European Central Bank will utilize its as yet unused market support tools.
Previously in 2022, the European Central Bank established “transmission protection tools” to address the severe sell-off of Italian bonds and prevent financial market turmoil.
Officials have publicly stated that the transmission protection tools are only to be used to address unreasonable market fluctuations. Therefore, if these tools were to be used to alleviate concerns about French debt in the market, it could damage the reputation of the European Central Bank.