From Our Business Correspondent
The yield on the benchmark 10-year U.S. Treasury note climbed as high as 5.041 percent in early trading on Tuesday, its highest level since July 2007, before settling near 5.00 percent by the close. The move pointed to higher borrowing costs across the U.S. economy.
Higher oil prices, persistent inflation and expectations of further Federal Reserve rate increases have driven the recent rise in Treasury yields.
The climb this year is already feeding through to households and firms. Mortgages, auto loans and personal credit become more expensive as the 10-year yield rises. Businesses face a higher cost of capital, and the U.S. government pays more to service its debt.
The global bond market, anchored by the roughly $32-trillion Treasury market, has been in a sharp sell-off. Investors are weighing a mix of pressures: energy prices above $100 a barrel, uncertainty around the widening Middle East conflict involving Iran, large U.S. fiscal deficits, heavy corporate issuance to fund artificial-intelligence investment, and the prospect of tighter Fed policy. German 10-year Bund yields have reached their highest levels since 2009; Japanese 10-year yields have touched three-decade highs.
The rise has continued despite Treasury Department efforts to steady the market. Treasury Secretary Scott Bessent has expanded buybacks of longer-dated debt in recent weeks. So far those operations have not reversed the trend. Bessent told lawmakers on Tuesday that yields reflected “global issues” and that recent auctions and buybacks had been successful; markets have not treated the interventions as decisive.
The spike comes on the eve of the Federal Reserve’s policy decision on Wednesday. Traders have priced in about a 92 percent chance that the Federal Open Market Committee will raise the federal funds target by 25 basis points from the current 3.50–3.75 percent range — which would be the first hike since 2023 after five consecutive holds this year.
The Fed has “little choice but to hike rates” this week, as the bond market has been “signaling for weeks that higher rates are warranted,” Carol Schleif, chief market strategist at BMO Wealth Management, said on Tuesday. Citing hot inflation data, strong corporate earnings, a resilient labor market and severe geopolitical disruptions, she cautioned that elevated yields “could be here to stay for some time.”
Wall Street is split on what the 5 percent threshold means for equities.
Barclays strategists, in a Tuesday note, warned that higher rates have already compressed valuations and are putting equity portfolios at greater risk. “While earnings have so far offset the drag, the approaching 5 percent threshold in 10Y yields marks a historically important inflection point, beyond which rates have typically become a more persistent headwind for equities,” they wrote. The risk of a “sharper repricing,” they added, would grow if yields move materially higher.
BlackRock Investment Institute struck a more constructive tone the same day, saying that rising global rates “have not knocked us off our pro-risk stance.”
Markets now wait on the Fed statement and Chair Kevin Warsh’s press conference. A hike is widely expected; any signal that further tightening will be limited — or that inflation from energy and fiscal pressure remains a live threat — could still push long-term yields higher from here.
