Bonds snap back, investors step in after 10-year yield hits 24-year high

A wave of investor buying reversed an early selloff in US Treasuries on Thursday, providing relief to bondholders after long-term yields surged to their highest level in 24 years following the latest hot economic data.

The reversal opened October on an optimistic note following the largest quarterly rise in 10-year yields since 1994, a year known on Wall Street as the great bond massacre. Yields on 10- and 30-year Treasuries hit their highest level since the spring of 2002 at midmorning on Thursday after the Institute for Supply Management said US manufacturing activity was little changed in September, with prices for inputs surging amid strong demand, pointing to sustained inflation pressures.

The early selloff came against a deteriorating backdrop for inflation, with benchmark Brent oil prices rallying after China suspended exports of oil products. Earlier data showed that new applications for US unemployment benefits fell last week and layoffs decreased in September, suggesting that labor-market stability persisted even as employers remained cautious about boosting hiring.

But the momentum shifted toward buying bonds shortly after 10 a.m. EDT (1400 GMT), with traders and analysts citing a widespread sense that the sharp rises in yields over the past six weeks have vastly improved the risk/reward profile on US Treasury debt. On Thursday afternoon, benchmark yields were on track for their biggest drop in two weeks after dovish comments from Federal Reserve officials.

Scott Welch, chief investment officer at Certuity in Potomac, Maryland, attributed the reversal to "professional investors coming in and saying this is not a bad time to take a long position and capture some total return and then reposition." He said yields could continue to trend higher in coming days.

Similarly, Oliver Pursche, senior vice president and adviser for Wealthspire Advisors, said: "I'm not suggesting the global bond selloff is over. I am suggesting it's probably overdone."

Pursche said some clients were taking losses in corporate bond portfolios that suffered over the last six months due to rising yields, "and redeploying that into Treasuries and municipal bonds."

SHARP SNAPBACK IN SHORT-TERM YIELDS

Some of the strongest buying occurred in 2-year Treasuries, with yields marking their biggest declines in a single session since August 2025. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, was last down 8.94 basis points at 4.798%.

The 2-year Treasury yields extended their decline to touch their lowest levels since September 22 after Fed Vice Chair Philip Jefferson said that while he supported the US central bank's September interest rate hike, he does not see any urgency to make another move.

The yield on benchmark US 10-year notes fell 5.02 basis points to 5.243% after earlier trading at 5.3445%, their highest level since April 2002.

The 30-year bond yield fell 3.21 basis points to 5.6069% after earlier reaching 5.6935%.

Garrett Melson, portfolio strategist with Natixis Investment Managers Solutions in Boston, said that while fundamental data such as economic growth and inflation have helped drive yields higher and boosted expectations for Federal Reserve policy tightening, the move in yields was "getting a little bit divorced from what some of those fundamentals are suggesting."

The grounds for the snapback rally were laid in part by the fact that "positioning is definitely getting very, very crowded," Melson added.

YIELD CURVE FLATTENS A BIT

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 44.3 basis points after trading at its steepest level since August 24.

While investors waited for Friday's crucial US nonfarm payrolls report for September, they were also monitoring public comments from Fed officials. Bets on an October hike dropped earlier in the week after dovish commentary from New York Fed President John Williams.

Minneapolis Fed President Neel Kashkari told Reuters that while he expects additional rate increases will be needed to restrain the economy going into 2027, he is unsure about whether the next move should happen later this month.

Kansas City Fed President Jeff Schmid told a rural development conference on Thursday that sorting out the effect of high energy prices on inflation remains a challenge for US central bankers who are trying to determine whether current inflation rates will persist.

(Reporting by Sinead Carew, Caroline Valetkevitch, and Chuck Mikolajczak; Editing by Paul Simao, Colin Barr, David Gaffen, and Nick Zieminski)