US long-term borrowing costs reached their highest levels in over two decades yesterday, driven by a surge in oil prices and strong economic data that intensified concerns about inflation. Thirty-year US Treasury yields rose six basis points to 5.46 percent, the highest since 2004, while ten-year yields increased five basis points to 5.17 percent, their peak since 2007. These moves followed a 15 basis point jump on Wednesday as investors speculated on faster interest rate hikes by the US Federal Reserve.

The rise in yields reflects growing unease over the supply of long-term debt amid record global issuance and significant budget deficits in major economies. Market participants also noted the impact of the ongoing conflict between the US and Iran, which some analysts linked to increased volatility in bond markets. Mohit Kumar of Jefferies described the situation as causing "a lot of pain" in fixed income, attributing the yield increases partly to hedge funds liquidating positions that had bet on short-term debt outperforming longer maturities.

The bond sell-off has exerted pressure on equity markets, with the S&P 500 index declining 0.6 percent and the Nasdaq 100 falling 0.8 percent. The trend extended beyond the US, with Japan’s 10-year government bond yield rising 10 basis points to 3.08 percent, its highest since 1996. Similarly, yields on 10-year Bunds in Germany increased six basis points to 3.61 percent, while UK gilts rose three basis points to 5.38 percent, continuing upward trends observed earlier in the week.

Eric Robertssen, chief strategist at Standard Chartered in Singapore, described the situation as a "correlated move higher in yields" across global markets, emphasizing that investors have limited options to avoid this trend.

Oil prices, measured by the Brent benchmark, climbed nearly 5 percent to $108 per barrel, extending a sharp increase seen on Wednesday. The price rise followed assertive statements from both the US and Iran during the United Nations General Assembly, signaling ongoing tensions without immediate prospects for resolution.

Henry Allen, a macro strategist at Deutsche Bank, noted that investors perceive the US and Iran as remaining far apart in their positions, contributing to expectations of sustained high oil prices. The combination of strong economic indicators and the rebound in oil costs has fueled speculation that the Federal Reserve may accelerate rate increases to combat inflation pressures.