Reliving the 2013 "taper tantrum"! The "global asset pricing benchmark" surges 50 basis points in a single month—a rare occurrence

The US Treasury market is experiencing its most severe single-month decline in four years, with volatility reaching a historic warning threshold and triggering a chain reaction throughout the global asset pricing system.

The 10-year US Treasury yield surged more than 50 basis points in September, breaking through 5.3% and reaching its highest level since 2002—far exceeding the 2007 peak. Such a move is extremely rare for a market totaling $32 trillion and regarded as the anchor of the global financial system.

According to Bloomberg and the Financial Times, the current sell-off has evolved from fundamentally-driven to a vicious cycle dominated by technically forced selling—rising yields are forcing some funds to cut positions, further lowering bond prices, raising borrowing costs, and triggering a new round of selling. Priya Misra, portfolio manager at JP Morgan Asset Management, warned, "This is a vicious cycle and you have to think about what can break it. No one wants to stand in front of the train."

The real yield on 10-year Treasuries rose by 57 basis points in just one month. In stark contrast, the last notable episode was the 2013 "Taper Tantrum," when then-Fed Chair Ben Bernanke signaled a reduction in asset purchases, triggering violent swings in the bond market and massive equity sell-offs. The current fluctuation in real rates over a single month is one of the most severe since that panic.

The ongoing rise in yields has been transmitted to the real economy, pushing up household mortgage costs, corporate financing expenses, and putting pressure on the stock market. T. Rowe Price Chief US Economist Blerina Uruçi said, "The upward trend in yields is clear. Many of the driving factors are structural and will be with us for a long time."

The initial wave of Treasury selling was driven by concerns over the US public debt and inflation, but this week, it has morphed into a technically-driven forced unwind.

Matthew Scott, global head of trading at AllianceBernstein, pointed out that the main force behind this week’s large-scale selling in long-term Treasuries came from hedge funds and REITs holding large amounts of mortgage-backed securities (MBS). The logic is: as borrowing costs rise, Americans’ willingness to prepay mortgages drops, passively extending the duration for MBS holders. To hedge this change, they are forced to sell other long-term bonds, including Treasuries.

Barclays analyst Amrut Nashikkar noted similar dynamics in the Treasury futures market—leveraged funds with large positions have been forced to rebalance their portfolios. Citi North America Rates Swap Desk Head Daniel Gottlander agreed: "When you see large-scale selling, you have to reduce risk in other parts of the portfolio. That’s why everything happens simultaneously, and spillover effects are significant." He also pointed out that "marginal buyers have not yet appeared"—the usual dip-buyers who stabilize the market in normal times are nowhere to be found right now.

Policy measures have failed to stem the selling. Treasury Secretary Janet Yellen previously decided to expand the scale of Treasury purchases, but the move has not stopped yields from continuing to rise.

Inflation data has also brought little comfort. Data released Wednesday showed the Fed’s preferred inflation gauge—the Personal Consumption Expenditures (PCE) Price Index—remained at 3.4% year-on-year in August, below the market’s expectation of 3.7%, but this result had minimal positive impact on the bond market.

On a fundamental level, surging energy prices are adding to inflationary pressures, directly eroding the returns of fixed-interest bonds. In addition, massive financing needs from large AI companies, strong US economic growth projections, and public debt surpassing $40 trillion have all become structural drivers lifting yields. On the monetary policy side, the Federal Open Market Committee, led by Chair Jerome Powell, unanimously voted for a rate hike earlier this month, and the market currently expects several more hikes in the next 12 months.

The third quarter not only shattered hopes for 'lower-for-longer' rates but completely ended that expectation. From the actions of G20 central banks, only the Reserve Bank of Australia raised rates in the first quarter; four banks raised rates in the second quarter; by the third quarter, key banks including the Reserve Bank of Australia, the European Central Bank, the Bank of Japan, and the Federal Reserve all hiked rates in succession, continuously strengthening the global policy tightening cycle.

Examined further, the 10-year US Treasury yield touched as high as 5.306% intraday on Wednesday, the highest since 2002. This means US borrowing conditions are not just returning to pre-2008 "normalization" levels—they could mark a deeper, structural transition.

According to The Wall Street Journal, the last time yields were at this level, the dot-com bubble had just burst, and investors still vividly remembered the strong growth and persistently high rates of the 1990s. In the subsequent decades, economists broadly believed the world had entered a new era of low inflation and low interest rates. The inflation wave triggered by the pandemic challenged this view, and today’s market trends are upending it entirely.

Blerina Uruçi pointed out that the economic growth fueled by the AI investment boom, the challenge to investor demand from ever-expanding government debt, and the inflationary pressures brought by rising trade barriers all represent persistent structural drivers. Natixis Corporate & Investment Banking Head of US Rates Strategy John Briggs noted that although the US Navy and Gulf oil producers have improved their response to Iranian attacks, Brent oil is still hovering near $100 a barrel, and diesel prices recently hit record highs—the market’s concerns over disrupted oil flows persist.

Goldman Sachs data reveals the underlying risk in this debt market turmoil. Tony Pasquariello of Goldman said, "The 10-year real yield has climbed 57 basis points in a month, breaking through its historical two standard deviation 'speed limit' linked to negative stock returns—the monthly 'stress' threshold of around 50bps has just been triggered." Historical records show that whenever 10-year Treasury yields move more than 50 basis points in a month, stocks take a big hit.

Other Goldman figures are equally alarming: the 2-year Treasury yield is up 145 basis points year-to-date, and the 10-year has climbed for seven straight months. Goldman credit strategy forecasts the 10-year at 5.29%, putting it in the 100th percentile of all projections since 2004.

However, the stock market so far appears not to have fully reacted—or, more precisely, only a handful of mega-cap stocks in the S&P 500 by market weight remain unscathed. Over the past month, the median stock has fallen 5%, the S&P 500 has barely budged, and the only sector propping up the index is semiconductors, up 6% for the month.

Crossmark Global Investments CIO Bob Doll warned that if the Fed truly aims to bring inflation down to 2%, it may have to tighten financial conditions to 'restrictive' levels—which is not something the stock market would welcome. With marginal buyers absent, forced selling persisting, and policy tools proving limited, there is still no clear answer as to when this vicious cycle can be broken.