A deepening global bond market rout pushed the benchmark US Treasury yield to its highest level since early 2025 on Tuesday, as thin August trading conditions, renewed inflation concerns, and a surge in corporate debt supply combined to drive yields higher.

US Treasuries fell further during the session, with yields across maturities rising by 1 to 2 basis points. The 10-year Treasury yield climbed approximately 2 basis points to 4.75%, marking its strongest level in 19 months. The selling pressure extended across sovereign debt markets worldwide, from Europe to Japan, fueled by growing uncertainty over the inflation outlook and shifts in the composition of bond buyers.

In a related development, Germany sold 30-year bonds through a banking syndicate on Tuesday, with the coupon set at its highest level in 15 years. BMO Capital Markets US interest rate strategy head Ian Lyngen noted in a client report that "the Treasury selloff itself has become a macro event."

Corporate bond issuance also played a significant role in Tuesday's market action. August corporate bond sales had already reached a record monthly high of over $145 billion by Monday, with 12 issuers collectively selling $9.1 billion in bonds that day.

Adding to the mix, Middle East peace prospects suffered another setback. US President Donald Trump indicated he would not extend an agreement with Iran that is set to expire, reigniting tensions in the Strait of Hormuz. In response, Brent crude oil climbed above $91 per barrel on Tuesday, after earlier touching its highest level since late July.

However, traders have trimmed their bets on further increases in US borrowing costs this year, following a string of recent economic data that supports the Federal Reserve's wait-and-see stance. Interest rate swap markets show traders assign roughly a 35% probability of a rate hike at the September meeting of the Fed, now chaired by Kevin Warsh. The odds for an October move are seen as a "coin flip," while the timeline for a fully priced-in rate increase has been pushed back to January 2027.

Lyngen added in his report: "We don't expect the Fed to hike next month, but that doesn't mean the market will price the probability at zero in the lead-up to the decision. Warsh's removal of forward guidance has certainly complicated the policy outlook."