Global bond sell-off deepens amid fears US economy may be running too hot – business live

Global bond markets are experiencing a significant sell-off, fueled by concerns that the US economy may be running too hot. The Federal Reserve is now considered more likely to raise interest rates at least once more this year, with a 55% probability that rates will be half a percentage point higher by the end of December. This potential for two quarter-point rate hikes, following the Fed's earlier hike this month, has intensified fears of overheating.

Yesterday marked the largest jump in the 10-year Treasury yield since early April 2025, with the yield surging by 15.2 basis points. Strong Purchasing Managers' Index (PMI) data and a rise in oil prices were the primary drivers, leading to increased speculation of more aggressive rate hikes. In fact, current futures price a 71% chance of a Fed rate hike at the October meeting.

The US economy is showing signs of modest overheating, with unemployment at 4.1% and growth outpacing expectations. This suggests that aggregate demand may need to be curbed through higher interest rates if inflation readings remain strong. Recent flash PMI figures for September indicated that activity in the US economy expanded at the fastest pace in over five years, with new orders and manufacturing hiring reaching their highest levels since April 2022 and February 2021, respectively.

While these figures were buoyed by massive AI investment and strong consumer spending, supplier delivery times stretched and input costs remained elevated due to high energy prices and supply-chain issues.