The 10-year U.S. Treasury yield rose to the highest in almost two decades, the latest milestone in a bruising global bond selloff driven by booming capital investment and soaring energy prices that are exacerbating inflation.
The yield, which serves as a benchmark for borrowing costs across the globe, rose as much as five basis points to 5.04% on Tuesday, the highest since 2007, before wrapping up the New York session at 5.00%. The jump came after oil prices jumped anew on concern that crude supplies could be
The bond slump raises the stakes ahead of the Federal Reserve's interest-rate decision on Wednesday, when investors expect officials to raise short-term borrowing costs for the first time since 2023. If they don't hike, or if Fed Chairman Kevin Warsh is noncommittal about additional increases, traders may demand even higher yields on long-term bonds to safeguard their investments against the risk that inflation will remain elevated.
"It would be very difficult for the Fed to leave rates unchanged this week without eroding its inflation-fighting credibility," said Vail Hartman, a strategist at BMO Capital Markets. "The market is vulnerable to not only an unexpected hold, but also a dovish hike that entails a more patient takeaway from the dot-plot or press conference."
Bond yields have been rising globally since the U.S. and Israel launched an assault on Iran in late February, disrupting the supply of Middle Eastern oil and gas. That's on top of other factors such as massive corporate borrowing to fund artificial intelligence spending, which is both flooding markets with debt and pumping stimulus into an already resilient U.S. economy.
It also comes as the amount of debt governments issue continues to rise, both to refinance maturing bonds and to fund deficit spending. Central banks are no longer hoovering up government bonds as part of their quantitative easing programs, and demand from other traditional buyers is cooling — resulting in a greater reliance on more price-sensitive investors.
"The scope for long-end yields to fall is somewhat limited given that we don't see signs of weakness in the real economy and supply/dynamics in the Treasury market are very different relative to 2007," Phoebe White, head of U.S. rates strategy at UBS Group AG, said via email. "Structural demand for U.S. Treasuries, particularly among foreign official investors, is materially weaker."
A Bloomberg gauge of returns on Treasuries has declined around 1% since the start of the month, and is down 1.6% this year. Around a third of fund managers
The drop in U.S. government bonds is part of a broader global move that's seen Germany's 10-year yield rise to the highest since 2009, while Australia's equivalent rate touched a 15-year high. Bonds in Japan also retreated Tuesday.
An auction of 20-year Treasury bonds at 1 p.m. New York time drew the highest yield in data going back to 2020, when the U.S. reintroduced it. Demand fell short of expectations despite the lofty yield.
In the U.S., the rise in the 10-year rate is particularly important because it serves as a baseline to price other loans such as mortgages. That makes its rise a headache for President Donald Trump ahead of midterm elections, with Treasury Secretary Scott Bessent having previously said that lowering 10-year yields was a
Tuesday's selloff is the latest assault by bond bears on the 5% level, a closely watched threshold. Such round numbers are often seized on as key pivot points that can catalyze decisions by investors and policymakers.
Some speculate that investors in other asset classes will be tempted to lock in roughly 5% annualized returns for the next decade, potentially diverting cash away from the stock market.
"Through 5%, it starts to get worrisome for risk assets," said Jesse Marre, a senior portfolio manager at Hilbert Group.
The worry for bondholders is that there aren't enough dip buyers to quell the jump in rates, perhaps because energy prices keep rising or should the Fed disappoint. In that scenario, the cost of borrowing for the US government — and by extension anyone seeking U.S. dollars — could enter a trading range not seen in a generation.
"Could things get even more sinister? Yes, where a break above 5% on the 10-year yield does nothing more than bring 6% into focus," said Padhraic Garvey, head of research for the Americas at ING Groep NV. "Such a journey from 5% to 6% would be a far tougher one for the wider market to stomach."
