US government bond yields surged on Wednesday after fresh service and manufacturing data intensified market worries about further interest rate hikes from the Federal Reserve.

The 2-year Treasury yield jumped 8 basis points to 4.466%. The benchmark 10-year Treasury yield rose 7 basis points to 5.059%, a level not seen since July 2007. The 30-year Treasury yield climbed more than 4 basis points to 5.349%. A basis point equals 0.01%, and yields move inversely to prices.

S&P Global's services PMI jumped to 58.7 in September, its highest level in nearly five years, up from 56.5 in August. Its manufacturing PMI also rose to 56.7, a level not seen in over four years.

Where to start

S&P Global Market Intelligence Chief Business Economist Chris Williamson said in a statement: "US business activity continues to boom."

"To better understand this surge in growth, aside from the demand spike following the reopening of the economy after COVID-19 lockdowns, the latest improvement in business activity is the largest on record since early 2015. Both manufacturing and services are clearly booming right now."

However, he added, "At the same time, input costs in September rose at the fastest pace in four years, with fuel and transportation costs surging sharply due to higher oil prices."

Adding further upward pressure on yields were remarks from Michael Barr. The Federal Reserve governor said further rate hikes may be necessary because "the risks to achieving our inflation target have increased."

The Fed raised its overnight benchmark rate last week, as persistently high inflation readings were driven by rising energy prices.

According to the CME FedWatch tool, the probability of another 25-basis-point rate hike in October rose to 64% on Wednesday, up from 55% on Tuesday. A month ago, that probability stood at less than 10%.