10-year Treasury yield rises above 5.14%; tech stock rebound weakens safe-haven demand; Fed rate hike expectations heat up again.

As a strong rebound in U.S. tech stocks weakened demand for safe-haven assets, U.S. Treasuries fell broadly on Monday, pushing yields across maturities up by 6 to 8 basis points. Among them, the 10-year Treasury yield rose more than 6 basis points to 5.14%, close to the multi-year high reached recently. Meanwhile, traders renewed their bets on Federal Reserve rate hikes next year and continued to expect the Fed to raise rates by 25 basis points in December this year. On Monday, U.S. tech stocks rebounded after a sharp selloff last week, with artificial intelligence (AI)-related stocks regaining investor favor, and the Nasdaq 100 rose 1.2%. Previously, the index posted its biggest weekly decline since April 2025 last week, which had briefly driven flows into the U.S. Treasury market to hedge against equity market downside risk. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said that given the sharp declines and rebounds in recent markets, investor positioning remains fragile, and many have therefore chosen to stay on the sidelines temporarily, further amplifying day-to-day market volatility. Over the past week, the main DRIVE in the U.S. Treasury market has shifted noticeably. Previously, safe-haven demand triggered by the tech stock slump had briefly supported Treasury prices, causing investors to temporarily ignore the inflation risk posed by rising oil prices. But as tech stocks rebounded, market attention shifted back to energy prices and the Fed's future rate policy. On Monday, rising oil prices further intensified selling pressure on U.S. Treasuries. U.S. benchmark West Texas Intermediate (WTI) crude futures rose 2.2%, settling at their highest level in a month; international benchmark Brent crude touched a five-month high intraday but ultimately closed lower. Since the U.S. attacks on Iran in late February this year, Middle East oil supplies have been disrupted, driving a sharp rise in international oil prices and becoming an important factor affecting U.S. Treasury yields. Persistently higher energy prices have pushed up U.S. inflation, prompting the Fed to implement its first rate hike since 2023. However, last week's tech stock slump briefly overshadowed market concerns about inflation, temporarily weakening the linkage between U.S. Treasuries and oil prices that had persisted for months. As equities stabilized and rebounded, investors once again focused on the possibility that high oil prices could keep inflation elevated and force the Fed to maintain a more restrictive monetary policy. U.S. rates strategists at UBS Group AG recently raised their year-end target for the 10-year Treasury yield to 5.2%. The bank said the revision was mainly based on three factors: a potentially more hawkish Fed policy path, limited room for near-term inflation improvement, and further upward assumptions for future oil price trends. Currently, the market still expects the Fed to raise rates by 25 basis points in December, but there remains disagreement over whether it will hike at the next policy meeting on October 28. The rates market currently reflects about a 20% probability of a rate hike in October. U.S. September inflation data released last week came in above expectations, briefly pushing the probability of an October hike above 50%, but as U.S. stocks subsequently fell, those bets gradually cooled. Some bond strategists believe there are still rebound opportunities in short-term U.S. Treasuries. If the Fed keeps rates unchanged at its October meeting, the market may further reduce bets on near-term rate hikes, thereby pushing short-term Treasury prices higher. In addition to changes in equities and monetary policy expectations, U.S. corporate bond issuance activity is also putting pressure on the Treasury market. Goldberg noted that several large companies entered the bond market to raise funds on Monday, attracting some capital that might otherwise have flowed into U.S. Treasuries. Among them, Walmart Inc. (WMT.US) unexpectedly launched a bond issuance plan to support business expansion; Kimberly-Clark Corporation (KMB.US) issued bonds as planned to fund its acquisition of Tylenol maker Kenvue (KVUE.US). It is understood that Kimberly-Clark Corporation needs to raise nearly $7 billion in cash for the acquisition, while Walmart Inc. is also seeking financing to expand investment spending. Increased corporate bond supply gives investors more fixed-income assets to choose from, further weakening demand for U.S. Treasuries. Meanwhile, government bond yields in Europe rose broadly, also putting additional pressure on U.S. Treasuries. Among them, French government bonds led the decline in the European bond market, with the 10-year French government bond yield surging 14 basis points on Monday to near 4.95%, the highest level since 2002. Riots related to the cost of living broke out in France last weekend, further intensifying market concerns about the country's political and fiscal outlook. Given that France's fiscal deficit is among the largest in the euro area, investors are also worried that Moody's Corporation may downgrade France's sovereign credit rating this Friday.