U.S. 10-year Treasury yield breaches 5% as inflation, supply worries mount

U.S. Treasury Secretary Scott Bessent has tried to contain the rise in bond yields by purchasing Treasuries. Photo by Blake Fagan /AFP via Getty Images

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An intensifying selloff in Treasuries pushed the U.S. 10-year yield above five per cent for the first time since 2023, as mounting inflation concerns collided with swelling government and corporate borrowing needs.

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The yield rose as much as four basis points to 5.01 per cent on Monday. It last breached the five per cent level in October 2023, and only for one day.

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The rise in the 10-year yield, a benchmark borrowing cost for global government and corporate debt as well as U.S. mortgages, threatens to slow economic growth and weigh on equities that are trading at lofty valuations. Yields have kept rising despite United States Treasury Secretary Scott Bessent taking the unusual step of boosting buybacks of longer-dated bonds as the Trump administration seeks to keep borrowing costs in check.

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Less than two months before the U.S. midterm elections, the 10-year yield is now more than a full percentage point above its level before the outbreak of the Iran war. The conflict has sparked a surge in oil prices, adding to inflation angst. Those concerns were reinforced by hotter-than-expected consumer-price data for August, prompting traders to boost bets on U.S. Federal Reserve rate hikes starting as soon as Sept. 16.

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But the selloff also reflects deeper structural forces that have pushed up long-dated yields across major developed markets, with a gauge of global government borrowing costs rising to levels last seen in 2007. Investors are demanding greater compensation to hold long-term debt as governments and companies compete for capital amid widening fiscal deficits and a flood of issuance to fund artificial-intelligence infrastructure.

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“There are a lot of underlying factors that make for a sustained selloff in rates as the path of least resistance for now,” said Zach Griffiths, head of investment-grade and macro strategy at research firm CreditSights. Ten-year yields could rise toward 5.5 per cent, he said.

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The Treasury market has ballooned to about US$32 trillion from around US$4.5 trillion since 2007, pushing the federal debt to more than 100 per cent of U.S. gross domestic product. Fitch Ratings warned in August that the country is “vulnerable to future economic shocks” as debt levels grow.

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One day

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The last time the 10-year yield topped five per cent, in October 2023, it stayed there for only one day. Buyers quickly emerged as the U.S. labour market cooled and inflation eased, allowing the Fed to end its most aggressive tightening campaign in decades. By September 2024, the Fed began to cut rates.

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This time, a resilient labour market has kept investors focused squarely on inflation and the prospect that borrowing costs will remain higher for longer. Treasuries are now on course for their first annual loss since 2022.