Fresh data on the services and manufacturing sectors intensified market worries about further interest rate hikes by the Federal Reserve, causing Treasury yields across maturities to climb sharply on Wednesday. The 2-year yield rose 8 basis points to 4.464%, while the benchmark 10-year yield gained 7 basis points to 5.058%, marking its highest level since July 2007. The 30-year yield advanced more than 4 basis points to 5.347%. A basis point equals 0.01% and bond yields move inversely to prices.

At 11:33 a.m. Eastern Time, real-time quotes for select Treasuries showed the 10-year at 5.079% with a +0.112 gain, the 1-month at 3.879% with a -0.003 change, the 1-year at 4.469% up 0.059, the 2-year at 4.874% up 0.097, the 30-year at 5.384% up 0.081, the 3-month at 4.131% up 0.024, and the 6-month at 4.340% up 0.040.

Key economic indicators drove the selloff

The S&P Global September services Purchasing Managers' Index (PMI) jumped to 58.7 from August's 56.5, hitting its highest level in nearly five years. The manufacturing PMI also surged to 56.7, reaching a four-year high. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted the readings point to a remarkably strong expansion: "Excluding the rebound in demand following the lifting of pandemic restrictions, this is the strongest improvement in business conditions since early 2015, with both manufacturing and services booming simultaneously." However, he added that input costs for businesses rose at the fastest pace in four years during September, fueled by higher fuel and transportation costs linked to rising oil prices.

Fed official comments amplify rate expectations

Adding further upward pressure on yields, Fed governor Michael Barr stated that "the risks to achieving the inflation target have increased," suggesting the central bank will likely need to continue tightening monetary policy. The Fed already raised its overnight policy rate last week in response to energy price-driven inflation. According to the CME FedWatch tool, market pricing for a 25-basis-point rate hike in October jumped to 64% on Wednesday from 55% on Tuesday. Just one month ago, the probability stood at less than 10%.