Why Are U.S. Treasury Yields Rising?

U.S. Treasury yields have surged in recent days, driven by a combination of global monetary signals and key U.S. economic data.

The main catalyst was comments from Bank of Japan Governor Kazuo Ueda earlier this week, hinting at a possible interest rate hike in the near future. This boosted the Japanese yen and related assets, prompting investors—particularly opportunistic traders and carry trade participants—to reposition their portfolios, which in turn affected U.S. Treasury flows.

The dynamic between U.S. and Japanese government bonds is well-known: movements in one often influence the other. Since Ueda’s remarks, U.S. Treasuries have seen price declines, pushing yields higher, particularly on the benchmark 10-year note, reflecting the inverse relationship between bond prices and yields.

Recent U.S. economic data has further supported rising yields. The ISM services PMI jumped to 52.6, its highest level in nine months, exceeding expectations of 52.0. Weekly jobless claims also fell to record lows, partially offsetting concerns over weaker employment growth in non-farm sectors.

However, the ADP report on private payrolls for November showed a sharp slowdown, with a decline of 32,000 jobs—its largest drop in over two and a half years—versus expectations of a 10,000-job gain. This reflects weakness in the labor market and reinforces expectations of potential quantitative easing from the Federal Reserve. Meanwhile, U.S. industrial production in September remained unchanged, in line with forecasts, providing some stability to the economic picture.

In short, a mix of Japanese monetary policy signals, soft labor market data in certain U.S. sectors, and mixed economic indicators have all contributed to the recent rise in U.S. Treasury yields. Markets remain closely watchful for any new developments that could shift the balance of risk and opportunity in the global bond market.