US 10-Year Treasury Yield Rises to 5.34%, Highest Since 2002

The US 10-year Treasury yield rose to 5.34% on October 1, its highest level since 2002, as a sell-off worsened in global bond markets. The Dollar Index rose 0.31% to its highest range since mid-May, marking its sixth consecutive quarterly gain.

The euro fell 0.35% to $1.1291, dropping below $1.13 for the first time since May 2025, after a 2.5% decline in September, its largest monthly drop since July 2025. In the UK, the 30-year government bond yield reached 6%, its highest level since 1998, while the 10-year bond yield reached 5.5%, the highest since July 2007.

The FTSE 100 index dropped more than 1.5% to around 10,420 points, its lowest level since June, after opening down 1.79%. Analysts, including Jane Foley of Rabobank and Ray Attrill of NAB, attributed the dollar's strength to 10-year Treasury yield movements rather than pricing in US interest rate hikes, while markets are pricing in four UK rate hikes by July 2027.

The simultaneous rise in US and UK bond yields is affecting global borrowing costs, increasing financing costs for governments and corporations and putting pressure on stock prices and currencies. Markets are watching the interest rate path at the US and UK central banks, as any change in rate expectations quickly reflects on capital flows between markets.

What do these terms mean?

Bond yield: The return percentage achieved by the bondholder compared to its price, rising when the bond's market price falls. Dollar Index: An index measuring the performance of the dollar against a basket of major currencies. Government bond: A debt instrument issued by a government to finance its expenses, earning the holder periodic interest. Pricing: Traders' estimates of the likelihood of interest rate decisions prior to their announcement.