The yield on the 10-year U.S. Treasury note surged to a 19-year high on Wednesday, marking the largest one-day increase in nearly 18 months. This sharp rise was driven by multiple factors including unexpectedly strong economic data from the manufacturing sector, hawkish remarks from Federal Reserve Governor Michael Barr, and weak demand during a government auction of five-year notes. Additionally, persistently high oil prices, with West Texas Intermediate crude rising 2%, fueled concerns over inflation, intensifying market pressure on bond yields.

The 10-year yield climbed over 13 basis points to 5.104%, surpassing the critical 5% threshold for the first time since 2007. The 2-year Treasury yield, sensitive to Federal Reserve policy expectations, also jumped more than 11 basis points to 4.889%, reaching its highest level in over two years. This movement reflected growing investor anticipation of an additional Fed rate hike in October, following last week’s 25 basis point increase, the first in three years. The 30-year Treasury yield also hit its highest point since 2007, increasing by over 9 basis points to 5.398%.

Robust purchasing managers’ indexes from S&P Global played a key role, with the services PMI hitting 58.7, the highest in nearly five years, and the manufacturing PMI posting its strongest reading in over four years. These indicators signaled a booming U.S. economy despite rising inflationary pressures, as input costs surged due to elevated fuel and transportation prices. According to S&P Global’s chief economist Chris Williamson, the current growth is among the strongest since early 2015, underscoring ongoing demand strength in both services and manufacturing sectors.

Market reactions were heightened after Fed Governor Barr stressed the likelihood of further policy adjustments to bring inflation back to target. The poor performance of the recent Treasury auction, which drew weaker-than-average foreign central bank participation and resulted in a yield significantly above recent averages, added to the pressure. Meanwhile, surging oil prices linked to geopolitical tensions in the U.S.-Iran conflict have contributed to fears of persistent inflation, raising expectations for additional Federal Reserve tightening later this year.