The U.S. 30-year Government Bonds yield topped 5.2% on the 29th (local time), surging to a record high since July 2007 after 19 years. Although the Federal Reserve kept the benchmark rate on hold that day, many Commissioners strongly pushed for a hike, and the resulting caution over currency tightening slammed markets. Analysts said fears of prolonged inflation spurred a bond sell-off, sharply driving up long-term yields that serve as benchmarks for various market rates, including mortgage loans on dwellings.
In the bond market on the 29th, the 30-year U.S. Government Bonds yield jumped 0.105 percentage point intraday to 5.201%. At one point, the 30-year U.S. Government Bonds yield spiked to 5.244%. The 10-year Government Bonds yield, which serves as a global benchmark for bond yields, also rose about 0.07 percentage point to 4.671%. Typically, rising long-term Government Bonds yields mean falling bond prices. By contrast, the 2-year Government Bonds yield, which responds sensitively to prospective policy rate changes, fell 0.04 percentage point to around 4.236%, showing a divergence between long- and short-term yields as it transacted there.
The Fed decided at the Federal Open Market Committee regular meeting that day to keep the benchmark rate at 3.50%–3.75% annually. However, three—Dallas Federal Reserve Bank President Lorie Logan, Cleveland Federal Reserve Bank President Beth Hammack, and Minneapolis Federal Reserve Bank President Neel Kashkari—called for a 0.25 percentage point hike and voted against holding. As hawkish (currency tightening-preferred) voices grew within the Fed, Government Bonds investors judged the Fed would ultimately have no choice but to raise rates to control inflation and dumped long-dated debt. When rates rise, the appeal of the fixed interest paid by existing long bonds diminishes, making prices likely to fall sharply. For this reason, investors appear to have sold in advance to avoid losses during a rate-hike phase.
Wall Street analysts in fact lean toward a high likelihood that the Fed will raise rates around September. Ellen Zentner, chief economic strategist at Morgan Stanley asset management, said, "The Fed chose to be patient amid mixed economic indicators," and noted, "For now, the inflation data coming in through the September meeting will determine everything."
A surge in oil prices driven by geopolitical tension also poured fuel on rising Government Bonds yields. U.S. President Donald Trump said in a Fox News interview that day that, in response to Iran's surprise attack, "The United States will strike Iran hard." Right after Trump's remarks, West Texas Intermediate jumped 6.6% to settle at $84.46 per barrel. Fed Chair Kevin Warsh also said, "The Fed's decision is very important," adding, "We will not hesitate to act where necessary and appropriate." With geopolitical crisis stoking inflation and the Fed signaling a hawkish response, many assessed that the uptrend in long-term Government Bonds yields was strongly fanned.