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The 10-year US Treasury yield hit 5 per cent on Monday for the first time since 2023, as surging oil prices battered government bonds across the globe and pushed the world’s most important financial gauge into fraught territory.
The yield rose 0.04 percentage points to hit a high of 5.01 per cent in morning trading on Wall Street, before easing back to 4.95 per cent. Yields rise as bond prices fall.
The US 10-year yield acts as a benchmark for trillions of dollars in assets worldwide and its jump to 5 per cent, in a bond rout sparked by the Iran war shock, pushes it to what is widely viewed as a worrisome threshold. Besides a brief rise to 5 per cent in 2023, the last time 10-year borrowing costs hovered above that level was in the lead-up to the global financial crisis.
“The 10-year at these levels trips a signal somewhere,” Cresset Wealth Advisors chief investment strategist Jack Ablin said. “This is a moment to pay attention to.”
Ablin noted that the rise in yields would push up mortgage rates, which have jumped to almost 6.8 per cent in recent weeks, and make “capital more expensive” for businesses, putting pressure on corporate America.
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The rise in Treasury and global yields this year has been fuelled by inflation set off by Donald Trump’s war in Iran, mounting public debts and blockbuster debt issuance by tech companies financing the AI boom.
The latest bout of bond market volatility came as Brent crude, the international oil benchmark, jumped as much as 5 per cent on Monday to $109.80 a barrel, after Saudi Arabia closed a vital oil pipeline, before easing back to $105.88 in afternoon trading.
Stock markets also fell after the biggest AI companies called for a slowdown in the development of the rapidly advancing technology. Wall Street’s tech-focused Nasdaq 100 index recovered to be 0.4 per cent lower in afternoon trading, having dropped as much as 1.7 per cent in the morning after falls across bourses in Europe and Asia.
Scott Chronert, US equities strategist at Citi, said the 5 per cent level was a “line in the sand” and that he expected some “disruption” to the stock market.
Higher bond yields push up borrowing costs for businesses and households, putting more indebted parts of the economy under pressure, while also increasing the relative attractiveness of bonds versus equities.
Some worry that rising yields could “short-circuit” the boom in AI financing and test the sustainability of the US’s $40tn debt pile.
Mike Bell, head of market strategy at RBC BlueBay Asset Management, said the bond sell-off could “get uglier” if oil prices continued to climb. “It’s too soon to call the top for bond yields.”
The Treasury move comes ahead of a crucial Federal Reserve meeting where traders expect the US central bank will on Wednesday raise rates for the first time in three years in an effort to tame growing inflationary pressures.
Traders in the futures market are putting the odds of a quarter-point increase in interest rates this week at 91 per cent. Raising interest rates could draw criticism from Trump, who has repeatedly called for the central bank to loosen monetary policy. But investors warn that a failure to raise interest rates now could send yields spiralling even higher, as inflation fears mount.
“If the Fed doesn’t hike now, you risk losing control of the back end of the [Treasury yield] curve,” said Brij Khurana, portfolio manager at Wellington Management, referring to long-term yields.
The jump in the 10-year marks a setback for US Treasury secretary Scott Bessent, who in recent weeks has sought to drive yields lower, including conducting a bond buyback operation that drew criticism from investors.
“This is telling you that steps taken by the Treasury department like the buybacks — that have now increased a lot — have not worked. This is not a liquidity problem. This is a problem of the US issuing too much debt for too long,” said Barclays global chairman of research Ajay Rajadhyaksha.
Bond investors were demanding greater compensation to lend to the US in response to growing uncertainty, including “erratic, reactionary policy” from the Treasury, said Guy Miller, chief market strategist at insurer Zurich.
The rise in Treasury yields has also reverberated globally. The global bond sell-off pushed 10-year gilt yields up as much as 0.09 percentage points to 5.44 per cent, their highest level since 2007, before later coming back to 5.37 per cent.
“Higher yields are creating stiffer headwinds for global borrowers,” said Chris Turner, global head of markets at ING, adding that “when the higher cost of capital starts to show up in earnings forecasts and releases, that is probably when equities come under more broad-based pressure”.
