Global bond markets were under renewed pressure on Thursday as the sell-off deepened, with U.S. Treasury yields hitting their highest in decades and threatening stocks, even though tech firms managed to get some boost from AI chipmaker Micron's blockbuster earnings.
The 10-year U.S. Treasury yield, a yardstick for global borrowing costs and asset prices, rose to 5.34%, its highest since 2002, before dip buyers stepped in, bringing it back to 5.28%.
It posted its biggest quarterly rise this century in the three months to September, with the selling pressure also rippling through bonds in France, Britain and Japan.
Yields have been surging around the world as soaring energy costs fan inflation and as the boom in AI and data center building lifts expectations for growth and for where short-term interest rates will settle.
Stalling peace talks between the U.S. and Iran to end the seven-month-long war in the Middle East have kept crude prices elevated. Brent futures surged 42% in the July-September quarter, and the December contract, the current benchmark, was last at $100 a barrel.
"We have had a prolonged selloff in bonds – they have been correlated with oil prices and also we've had strong U.S. data," said Rory McPherson, chief market strategist at Wren Sterling.
"We don't have enough buyers who want to buy bonds."
That all left European shares under pressure, with the broad STOXX 600 down 0.75% and European banks off 1.8%, although U.S. share futures managed to hold steady.
Helping the U.S. were high-stakes earnings from Micron, a key supplier to AI bellwether Nvidia. They signalled strong demand for AI memory chips, with financial commitments under long-term supply agreements at $32 billion, up from $22 billion in June.
That helped push tech-heavy stock markets in Asia higher. Japan's Nikkei jumped more than 3%, and South Korea's KOSPI reversed earlier losses to gain 1.7%.
"Micron's numbers are another strong validation of AI and memory demand, but markets may increasingly be asking whether we are closer to peak memory shortage, even if demand continues to exceed supply," said Charu Chanana, chief investment strategist at Saxo.
Global yields surged in September as bond prices tumbled, amid soaring energy costs and the AI boom, leaving investors bracing for a period where interest rates stay higher for longer.
Market focus has been on how long U.S. Treasury yields stay above the psychologically important 5% level, while some investors even weigh the possibility of yields breaching 6%.
The U.S. 10-year yield gained 87 basis points in the July-September quarter, the biggest quarterly rise since 1994, LSEG data showed.
France's 10-year yield gained 120 basis points in the quarter, the most since 1987, and its yield briefly jumped by a further 10 basis points on Thursday to 4.96%, closing in on the symbolic 5% level.
It too then eased back and was last down 2 bps at 4.82%, though the French budget process is keeping investors on edge.
Yields in Japan have also climbed to multi-decade highs, while Britain's 30-year yield nudged above 6%.
Somewhere in the mix for bonds also was a reduction in bets on a further Federal Reserve rate hike in October after Wednesday's softer-than-expected U.S. inflation reading.
Traders are pricing in a 38% chance of a Fed hike this month, versus 50% a day earlier, CME's FedWatch tool showed.
In currency markets, the winner from the bond selloff has been the dollar, which was stronger again on Thursday.
The euro was down 0.3% at $1.1297, and sterling was down by a similar amount at $1.3223.
Gold was up a touch at $4,174 an ounce.
