Bond yields have risen for many reasons this year (chart). The war in the Middle East and the war between Russia and Ukraine have pushed up crude oil and refined petroleum product prices. Rising interest rates in Japan are forcing hedge funds to unwind their carry trades. They are paying back their yen loans by selling the higher-yielding government bonds of the US and other countries that they purchased with the proceeds. The surge in the supply of AI-related corporate bonds and the widening US federal budget deficit have also been cited as explanations for the bear market in bonds.
Today, however, the main reason that bond yields rose sharply is that the US economy is booming. Purchasing managers' indexes typically are not huge market movers, but this morning's readings from S&P Global caught the market by surprise. The services PMI jumped to 58.7 in September, its highest level in nearly five years, from 56.5 in August. Its manufacturing counterpart soared to 57.0, a level not seen in more than four years (chart).
