President Donald Trump's “hottest economy in the world” is fuelling a huge sell-off in the world's biggest bond market, as strong growth and inflationary pressures turbocharge US interest rate expectations. The $32tn US Treasury market this week suffered its biggest one-day rout since the start of the president's trade war and is on track for its worst month since late 2024, as unexpectedly robust economic data adds to pressures from record debt and surging oil prices. Ten-year US Treasury yields tore above 5.2 per cent this week to their highest level since 2007, while thirty-year yields rose above 5.5 per cent for the first time since 2004.

Big bond investors said the surge in yields reflects a market struggling to keep up with powerful US economic growth, as rising borrowing costs so far show no sign of putting a brake on activity. “There's been a lot of debate about whether Treasury yields have got to levels that start to . . . cool a red-hot economy,” said Mike Riddell, a fund manager at Fidelity International. “Economic data have answered that — we're not even close.”

A mixture of domestic economic resilience and high energy prices stoked by the Iran war prompted the Federal Reserve to raise interest rates this month for the first time since 2023. The central bank's hawkish tone and robust data have prompted investors to escalate bets on more rate rises. S&P Global's Purchasing Managers' Index on Wednesday showed business activity accelerating at the fastest pace in five years, reinforcing a view that the economy continues to run hot. The Atlanta Fed's GDPNow tracker forecasts growth at an annualised rate of 5.1 per cent in the third quarter.

Trump posted on social media that this is the “HOTTEST” Economy in the World, adding that the outlook was good for working people. However, the 30-year mortgage rate hit 7 per cent this week for the first time in almost two years. The futures market is pricing in another 0.9 percentage points' worth of increases by next year. “The market is revising the Fed rate path to be higher for longer,” said Seb Barker, chief market strategist at Marshall Wace.