The 10-year US Treasury yield rose above 5.14%, and the rebound in technology stocks weakened safe-haven demand. Expectations of the Fed's interest rate hike are heating up again

The Zhitong Finance App learned that as a strong rebound in US technology stocks weakened market demand for safe-haven assets, US Treasury bonds generally fell on Monday, driving Treasury yields of various maturities up 6 to 8 basis points. Among them, the 10-year US Treasury yield rose more than 6 basis points to 5.14%, close to the multi-year high recently hit. Meanwhile, traders have increased their bets on the Fed's interest rate hike next year and continue to expect the Fed to raise interest rates by 25 basis points in December this year.

On Monday, US technology stocks rebounded after experiencing a sharp sell-off last week. Artificial intelligence (AI) related stocks were once again sought after by investors, and the Nasdaq 100 index rose 1.2%. Previously, the index recorded its biggest weekly decline since April 2025 last week, once driving capital inflows into the US Treasury bond market to hedge against the risk of a decline in the stock market.

Gennadiy Goldberg, head of US interest rate strategy at TD Securities, said that given the recent sharp decline and rebound in the market, investors' positions are still weak, so many people choose to wait and see for a while, further amplifying the daily fluctuations in the market.

Over the past week, there has been a marked shift in the main driving forces of the US bond market. Previously, safe-haven demand caused by the sharp drop in technology stocks once supported treasury bond prices, causing investors to temporarily ignore the risk of inflation brought about by rising oil prices. However, as technology stocks rebounded, the market's attention turned back to energy prices and the Federal Reserve's future interest rate policy.

On Monday, rising oil prices further increased the selling pressure on US bonds. US benchmark West Texas Intermediate (WTI) futures rose 2.2% to close at the highest level in a month; international benchmark Brent crude hit a five-month high in intraday but eventually closed down.

Since the US launched an attack on Iran at the end of February this year, Middle East oil supply has been disrupted, driving up international oil prices sharply, and has become an important factor affecting the yield on US Treasury bonds. Continued rise in energy prices boosted US inflation, prompting the Federal Reserve to implement the first rate hike since 2023.

However, the sharp drop in technology stocks last week once overshadowed market concerns about inflation, temporarily weakening the linkage between US debt and oil prices that had continued for several months. As the stock market rebounds steadily, investors are once again concerned that high oil prices may cause inflation to remain high and force the Federal Reserve to maintain a tighter monetary policy.

UBS US interest rate strategists recently raised the 10-year US Treasury yield target to 5.2% at the end of the year. The bank said that the adjustment forecast is mainly based on three factors: the Fed's future policy path may be more hawkish, there is limited room for improvement in short-term inflation, and further increases in assumptions about future oil price trends.

Currently, the market still expects the Federal Reserve to raise interest rates by 25 basis points in December, but there are still differences on whether to raise interest rates at the next interest rate meeting on October 28. The interest rate market currently reflects a probability of an interest rate hike in October of about 20%. The US inflation data for September released last week was higher than expected. At one point, it pushed the probability of interest rate hikes in October to more than 50%, but with the subsequent decline in US stocks, related bets gradually cooled down.

Some bond strategists believe there is still a chance for short-term US Treasury bonds to rebound. If the Federal Reserve keeps interest rates unchanged at the October meeting, the market may further reduce bets on recent interest rate hikes, thereby driving up the price of short-term treasury bonds.

In addition to changes in stock market and monetary policy expectations, US corporate bond issuance activities are also putting pressure on the treasury bond market.

Goldberg pointed out that a number of large companies entered the bond market to finance on Monday, attracting some of the funds that may have gone to US Treasury bonds. Among them, Walmart (WMT.US) unexpectedly launched a bond issuance plan to support business expansion; Kimberly (KMB.US) issued bonds according to the plan to fund the acquisition of Tylenol producer Kenvue (KVUE.US).

According to reports, Kimberly needs to raise nearly 7 billion US dollars in cash for this acquisition, and Walmart is also seeking financing to expand investment expenses. The increase in the supply of corporate bonds has given investors more fixed income assets to choose from, further weakening demand for US bonds.

Meanwhile, yields on European government bonds have generally risen, putting additional pressure on US Treasury bonds. Among them, French treasury bonds led the decline in the European bond market. The yield on 10-year French treasury bonds surged 14 basis points on Monday, close to 4.95%, the highest level since 2002.

Cost-of-living riots broke out in France last weekend, further fueling market concerns about the country's political and financial prospects. Considering that France's fiscal deficit is one of the largest in the Eurozone, investors are also worried that Moody's may downgrade France's sovereign credit rating this Friday.