Yields fall after US 10-year hits highest since 2002; US stocks inch up

By Caroline Valetkevitch and Amanda Cooper

NEW YORK/LONDON, Oct 1 (Reuters) - Bond yields fell on Thursday, reversing a rout in prices that earlier pushed the 10-year US yield to its highest level since 2002, as investors returned to the market, while Wall Street stocks edged higher with the decline in yields. 

Stocks slipped and long-term US bond yields hit fresh highs in early trading after the latest economic data pointed to sustained inflation pressures. The Institute for Supply Management said US manufacturing activity was little changed in September, with prices for inputs surging amid strong demand.

The day's move in bonds follows the largest quarterly rise in 10-year yields since 1994 and sharp bond yield rises in Europe and Asia as well. 

Yields have been surging around the world as soaring energy costs fan inflation and as the boom in AI and data center building lifts expectations for growth and for where short-term interest rates will settle. The Federal Reserve last month raised rates for the first time since 2023.

The recent selloff in bond prices has pushed Treasury yields to levels that are now attractive, said Oliver Pursche, senior vice president and advisor for Wealthspire Advisors in Westport, Connecticut.

"I'm not suggesting the global bond selloff is over. I am suggesting it's probably overdone," he said.

Investors also digested comments from Fed officials. Minneapolis Fed President Neel Kashkari told Reuters that while he expects additional rate increases will be needed to restrain the economy going into 2027, he is unsure about whether the next move should happen later this month.

They are also likely anxious to see Friday's key US monthly jobs report.

EURO, STOXX FALL

Two-year Treasury yields were showing their biggest decline in a single session since August 2025. The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, was last down 10.39 basis points at 4.783%.

The yield on benchmark US 10-year notes was last down 5.65 bps at 5.237%. It earlier reached 5.34%, its highest since the spring of 2002. The 30-year bond yield was down 3.33 bps at 5.6057% after reaching a fresh 2002 high earlier.

In Europe, the yield on Germany's 2-year government bond was last down about 14 bps at 3.05%. French 10-year government bond yields were up nearly 7 bps at 4.93%, following a volatile session.

Meanwhile, the euro hit its lowest point in 17 months, as investors battered European assets, with the European currency falling below $1.13 for the first time since May 2025 against the dollar. The euro was last down 0.77% at $1.1242.

"Europe imports energy and is vulnerable to higher rates, even another euro zone financial crisis. If you made a grid of winners and losers, the US would have more sectors that win than Europe. The likely outcome is a weaker euro currency," said Steven Major, global macro advisor at Tradition.

The pan-European STOXX 600 index ended down 1.3%, while MSCI's gauge of stocks across the globe fell 1.84 points, or 0.16%, to 1,132.93.

The Dow Jones Industrial Average rose 20.51 points, or 0.04%, to 50,926.56, the S&P 500 rose 14.91 points, or 0.19%, to 7,666.45 and the Nasdaq Composite rose 10.53 points, or 0.04%, to 26,871.60.

Also helping Wall Street, shares of Micron Technology rose 3% following a better-than-expected revenue forecast and $32 billion customer commitments under its supply agreements.

OIL JUMPS

Brent oil prices ended more than $4 a barrel higher after a report said the US was sending more troops and carriers to the Middle East and China suspended oil products exports. 

The new front-month December Brent crude futures contract settled at $102.31, up 4.37% or $4.28. US West Texas Intermediate crude futures finished at $92.87 a barrel, up 2.71%, or $2.45.

The seven-month-long war in the Middle East has been behind sharp gains in oil prices this year.

Spot gold rose 0.52% to $4,177.63 an ounce.

(Reporting by Caroline Valetkevitch in New York and Amanda Cooper in London; additional reporting by Alun John in London and Ankur Banerjee in Singapore; Editing by Kirsten Donovan, Alex Richardson and Daniel Wallis)