Tension mounts across Treasuries and Gilts: investors are fleeing, yields are spiking

The first trading session of October ended with the classic signs of a flight from risk. The financial markets experienced a turbulent day yesterday, with bond yields initially surging across the board to new multi-decade highs, before retreating selectively: on the one hand, Treasuries and Bunds, which thus managed to limit the damage alongside only Dutch bonds within the Eurozone; on the other, French OATs and, in their wake, BTPs – discussed in greater detail in the other article on this page – which, by contrast, saw their spreads against German bonds widen significantly. All the whilst, European stock markets ended up taking a hit (with the Milan Stock Exchange down 2.21% , dragged down mainly by the banks) far more than Wall Street, and the dollar rose to return to levels last seen in May 2025, pushing the exchange rate against the euro below 1.13 to 1.1233 by the evening.

The day’s final figures show that the US 10-year yield settled at 5.24 per cent after rising to 5.34 per cent during the morning, a record high since April 2002, whilst its German counterpart settled at 3.50 per cent after opening at 3.64 per cent – a level that briefly marked its highest since 2009. British Gilts, which had even briefly breached the 6 per cent threshold on the 30-year maturity, eventually settled at 5.94 per cent. French government bonds, however, met with a different fate: the 10-year yield even edged close to 5 per cent, ending trading at 4.92 per cent – the highest level in 18 years – whilst Italian bonds settled at 4.69 per cent: figures that bring the yield spread between the two countries and Germany to 140 and 119 basis points respectively.

The crisis, which until now had affected the debt of the major advanced economies in much the same way without any particular distinctions, therefore appears to be taking on somewhat different characteristics. With particular reference to Treasuries, whose movements are being closely monitored, not least because of their potential knock-on effects on other asset classes, the view gaining the most traction amongst industry experts is that the recent rise in yields reflects ‘stronger-than-expected growth rather than a loss of control over inflation’, as Luigi De Bellis, CEO of Equita, points out.

The macroeconomic indicators from the United States over the past few days have been rather contradictory in this respect, partly due to the revision of the methodology underlying the calculation of the Consumer Price Index. “The new data could make the Federal Reserve less concerned about marginal inflation” acknowledges Stephen Juneau, an economist at BofA Securities, whilst noting, on the other hand, that the growth figures should instead prompt the US central bank “to question further whether it has ever been in restrictive territory in recent years”.

Market participants’ expectations of a further possible rate hike by Washington at the meeting in late October have since more than halved to 30 per cent, but tensions remain high nonetheless. According to Equita, the main risk to monitor – also with a view to other markets – is the yield on the 30-year Treasury bond: ‘If it were to stabilise above 5.5 per cent,’ explains De Bellis, ‘the cost of capital for major technology firms could exceed the expected return on their investments, increasing the risk of a slowdown in investment and downward revisions to the sector’s earnings.’