U.S. Treasury Yields Steady as Bond Markets Stabilize; European Yields Rise

By Emese Bartha and Miriam Mukuru

U.S. government bond yields were steady on Friday while European bond yields rose although kept below recent multiyear highs in early European trade. This followed rate decisions by the Federal Reserve, the Bank of England and the Bank of Japan this week.

The Fed's 25-basis-point interest-rate hike on Wednesday, and signals of another raise to come this year, convinced markets about the seriousness of the Fed's inflation-fight.

The Bank of Japan also raised its policy rate to 1.25% on Friday, the highest since 1995, albeit in a split vote. The Bank of England's decision to hold rates and to stop the sale of long-dated gilts relieved markets and pushed gilt yields lower on Thursday.

Ten-year U.S. Treasury yields were little changed at 4.951%, having risen above the 5% psychological barrier earlier this week, Tradeweb data showed.

This week's Fed rate decision brought relief to markets and lowered the uncertainty around the central banks' commitment to tackle inflation. Falling oil prices also eased inflation concerns and caused Treasury yields to decline. Brent crude prices fell 1.9% to $102.8 a barrel as supply fears fueled by the outage of Saudi Arabia's East-West pipeline eased.

"The medicine from the Fed is working and may have prevented the rates selloff from spiraling out of control," said Commerzbank rates strategist Marco Stoeckle in a note. "Bond markets have chances to stabilize further."

The 10-year German Bund yield rose 2.5 basis points to 3.504%, below a peak of 3.572% hit earlier this week, its highest since 2009. The 10-year U.K. gilt yield climbed 4.6 bps to 5.264%, below this week's peak of 5.493%, its highest since 2007.

The 10-year Japanese government bond yield fell 1.2 basis points to 2.984% after the BOJ raised rates but as two board members voted against the move, raising doubts about the pace of further policy changes.

Bond yields have stabilized for now. Still, analysts warned that they could rise further.

"The global rebuilding of term premia is not yet complete, and markets still have scope to price a more aggressive path of central bank rate hikes," Societe Generale rates strategists said in a note.

Eurozone bond yields rose as markets continued to price in the possibility of additional interest rates rises by the European Central Bank in the coming months. Investors fully expect three ECB rate rises by the end of 2027, in addition to the two increases delivered this year, LSEG data show.

Gilt yields were lifted after Friday's U.K. retail sales data for August came in better than expected, suggesting that household spending stayed resilient despite high energy costs and increased prospects of higher interest rates by the Bank of England in the future. Monthly retail sales rose 0.5% in August, a sharp turn from the 0.5% contraction in July, and above the consensus forecast by economists in a Wall Street Journal survey of 0.1% contraction.

Markets fully price in three BOE interest rate rises by as early as March 2027, LSEG data show.

However, retail sales could cool down in the coming months as high energy prices and increased mortgage rates erode households' disposable income, Pantheon Macroeconomics economists Rob Wood and Elliott Jordan-Doak said in a note.

Write to Emese Bartha at emese.bartha@wsj.com and Miriam Mukuru at miriam.mukuru@wsj.com

(END) Dow Jones Newswires

September 18, 2026 05:08 ET (09:08 GMT)