Expectations that the Federal Reserve will keep interest rates higher for longer also hit the yen and ruble.

52 minutes ago George Steele, Mary McDougall

The yield on the 30-year U.S. Treasury bond hit a 16-year high on Tuesday as a global bond market sell-off weighed on stocks and shook currencies such as the yen and ruble.

The 30-year Treasury bond yield hit 4.95% for the first time since 2007, before the financial crisis, as markets adjusted to the prospect of long-term higher interest rates and the government's huge borrowing needs.

Borrowing costs in Germany and Italy also hit their highest levels in more than a decade, showing the global impact of the bond sell-off.

Stock markets on both sides of the Atlantic fell, the yen exchange rate against the dollar fell below 150 yen to the dollar, and the ruble exchange rate against the dollar fell below 100 rubles to the dollar.

The bond sell-off follows a string of strong U.S. economic data and signals that the Federal Reserve will keep interest rates higher "for longer" to curb demand and complete its mission of curbing inflation.

“The bond market sell-off is about underlying macroeconomic resilience, which we are seeing in rising real interest rates,” said Padhraic Garvey, managing director at ING.

Among data showing the health of the U.S. economy, this week's reading on manufacturing activity came in better than expected. Data on Tuesday also showed U.S. job openings unexpectedly increased in August.

The sell-off was more pronounced in longer-dated bonds, with the 30-year Treasury yield up 0.15 percentage point and the benchmark 10-year Treasury yield up 0.13 percentage point to 4.8%. The two-year Treasury yield edged higher. Bond yields move in the opposite direction to prices.

Expectations that U.S. interest rates will continue to rise have boosted the dollar and put pressure on other currencies.

The yen rebounded after falling below the politically sensitive 150 yen level after Japanese Finance Minister Shunichi Suzuki said authorities were watching the market with a sense of urgency.

The ruble has fallen below 100 to the dollar despite Russia's recent attempts to stem its depreciation by sharply raising interest rates.

The shift in the $25 trillion U.S. bond market has also triggered a sell-off in global stocks and bonds.

The closely watched 30-year German government bond yield rose 0.077 percentage points to 3.211%, the highest level since 2011, while the Italian 30-year government bond yield reached its highest level since 2012 at 5.45%.

Gavi said there is "some anxiety about Italy's budget deficit forecasts," but added: "I don't think this is a panic crisis... The market is not panicking, it's looking at the risks."

In the UK, 30-year bond yields broke through 5% this week, reaching their highest point since former Prime Minister Liz Truss’ ill-fated “mini” Budget, before falling back again on Tuesday to 4.99%.

U.S. and European stock markets weakened. The tech-heavy Nasdaq Composite closed down 1.9%, having fallen more than 2% during the session, while the broader S&P 500 fell 1.4%. The European Stoxx 600 fell 1.1%.

The bond market turmoil has affected stocks by raising the returns that investors can lock in by buying bonds instead of stocks.

The bond sell-off intensified after the Federal Reserve's September meeting made clear that the Fed intends to keep interest rates higher than market expectations next year and into 2025.

Futures market traders are betting that the benchmark U.S. interest rate will be cut two or three times by the end of next year from its current range of 5.25% to 5.5%. Before the Fed meeting, traders were pricing in four or five rate cuts by then.

Government borrowing needs on both sides of the Atlantic also pushed up yields.

"The US budget deficit is 7 per cent - very high in a non-recessionary period," said Jim Leaviss, a fund manager at asset manager M&G.

“When the government asks for and needs more money, bond yields must rise in response.

The U.S. Treasury plans to issue about $1 trillion in bonds in the three months to the end of September, the first increase in its quarterly borrowing schedule in 2-1/2 years.