Global Bond Selloff Deepens as 10-Year Yields Hit Multiyear Highs

The selloff in global bonds gained traction on Tuesday, pushing the 10-year U.S. Treasury yield to its highest level since 2007 ahead of the U.S. Federal Reserve's interest rate decision.

Investors accelerated selling of other global bonds too, pushing yields on 10-year German and Japanese government debt to multiyear highs.

The Stagnant Housing Market Is About to Face a 7% Mortgage

American Businesses Have No Idea How to Set Prices Right Now

What Comes Next, Now that the 10-Year Treasury Yield Has Crossed 5%?

Apple Finally Built a Smarter Siri. It Still Hasn't Caught Up in the AI Race.

Europe's Most Valuable Startup Gave Data to a Scammer. Now It Faces a Shakedown.

The 10-year Treasury yield hit a high of 5.041% overnight, Tradeweb data showed, as heightened tensions in the Middle East fueled concerns about energy prices and inflation. The benchmark eased to 5.004% later in the U.S. session.

The 30-year Treasury also reached its highest yield since 2007 rising to 5.401%, before cooling to 5.369%.

The 10-year German Bund yield rose to 3.572%, the highest since 2009, while the 10-year Japanese government bond yield hit a 30-year high of 3.036%.

"Rates markets remain hostage to oil and geopolitics ahead of Wednesday's Federal Open Market Committee [meeting]," Evelyne Gomez-Liechti, multiasset strategist at Mizuho, said in a note.

Any brief optimism around Iran diplomacy on Monday proved short-lived and U.S. Treasurys were then sold as oil prices began to rise again.

Whether the Fed raises interest rates or not, the 10-year Treasury yield is vulnerable to further increases due to concerns about inflation, ING rates strategists said in a note.

"Markets are clearly getting nervous, which means any setback can trigger material moves…with oil jumping higher every day and European gas trading well beyond previous highs, we see plenty of risks ahead."

Investors will be watching the Fed's comments closely, and they could help to calm bond markets, said Laura Cooper, global investment strategist at Nuveen.

If Fed Chairman Kevin Warsh signals that the committee is willing to take action to ensure price stability, this could in turn help to stem the selloff in long-end Treasurys, she said.

"At a time when the tinkering of Treasury buybacks risks eroding confidence, there is a greater need for the Fed to show resolve," she said.

The U.S. Treasury recently increased the volume of long-end debt buybacks to at least $4 billion per operation from $2 billion following a jump in long-dated government-bond yields.

Treasury Secretary Scott Bessent said at a hearing before the House of Representatives that Treasury auctions have been the "most successful" in 20 years. Hours later, however, his department auctioned $13 billion in 20-year bonds with a yield of 5.42%, the highest since 1986, when the tenor was discontinued, and since it was reintroduced in 2020. Demand indicators were on the soft side.

"Bessent's attempt to outsmart the bond market has not worked well and seems likely to continue to be a poor strategy," Spartan Capital's chief market economist Peter Cardillo said in a note about the auction.

It isn't just the Fed that is expected to hike interest rates as oil prices rise sharply. The European Central Bank raised interest rates last week and the Bank of Japan is expected to increase rates on Friday.

Supply disruptions in the Middle East amid heightened geopolitical tensions have kept oil prices elevated, sustaining concerns over persistent inflation and strengthening the case for tighter monetary policy, BankPro's Paolo Broccardo said in a note.

With a Fed hike widely expected, focus will switch to the voting split and, in particular, Chairman Kevin Warsh's stance, he said.

"A unanimous hike accompanied by signals of further tightening could push yields higher and extend the dollar's advance."

—Paulo Trevisani contributed to this article.

Write to Emese Bartha at emese.bartha@wsj.com

Americans Have Spent $100 Billion More on Fuel During the Iran War

OpenAI Considers Pre-IPO Funding Round at More Than $1.2 Trillion Valuation

Live Q&A: Ask Me Your Questions About iPhone Duo, iOS 27, the New Siri and More

Bond Yields Could Come Down as Fast as They've Climbed

Regulators Press Tesla on Whether Cybercab May Have Option for Human Control