US 10-Year Treasury Yield Climbs Above 5% as Bond Selloff Intensifies

The US 10-year Treasury yield climbed above 5% for the first time since October 2023 as investors stepped up selling of government bonds amid renewed inflation concerns and rising borrowing requirements.

 

The benchmark yield increased by as much as 4 basis points to 5.01% on Monday. The last time it crossed the 5% threshold was in October 2023, when it remained above that level for only one day.

 

The rise in the 10-year yield has significant implications for global financial markets because it serves as a key benchmark for government and corporate borrowing costs as well as US mortgage rates. Higher yields could put pressure on economic growth and weigh on equities, particularly as valuations remain elevated.

 

Inflation concerns have intensified following the recent increase in oil prices amid the Iran conflict. Stronger-than-expected US consumer inflation data for August has further strengthened expectations that the Federal Reserve could raise interest rates as early as September 16.

 

The 10-year yield is now more than one percentage point above its level before the conflict began. Despite efforts by Treasury Secretary Scott Bessent to increase buybacks of longer-dated government bonds, yields have continued to move higher.

 

The latest bond selloff also reflects longer-term structural pressures. Government borrowing needs have increased across major economies, while companies are also competing for capital to finance investments, including the rapid expansion of artificial-intelligence infrastructure.

 

A global measure of government borrowing costs has reached its highest level since 2007, indicating that investors are demanding greater compensation for holding long-term debt amid expanding fiscal deficits and increased bond issuance.

 

CreditSights strategist Zach Griffiths said underlying conditions could keep pressure on rates, with the 10-year yield potentially moving towards 5.5%.

 

The US Treasury market has expanded sharply since 2007, reaching roughly $32 trillion from about $4.5 trillion, while federal debt has climbed above 100% of US GDP. Fitch Ratings has also warned that rising debt levels leave the US increasingly exposed to future economic shocks.

 

The current environment differs from 2023, when the 10-year yield briefly exceeded 5% before falling as inflation eased and the labour market weakened. The Federal Reserve subsequently began cutting interest rates in September 2024.

 

This time, a relatively resilient labour market and persistent inflation concerns have increased expectations that borrowing costs could remain elevated for longer. US Treasuries are also heading towards their first annual loss since 2022.

 

Although the bond selloff has so far remained orderly, the continued rise in long-term yields is creating growing concern among policymakers. Bessent has taken several measures aimed at containing borrowing costs, including increasing long-term bond buybacks and considering changes to debt issuance.