The benchmark 10-year U.S. Treasury yield briefly touched 5.011% on Monday, marking its highest intraday level since July 19, 2007, when it reached 5.069%. This surge reflects a deepening selloff in the $31.5 trillion Treasury market and has pushed borrowing costs higher for households, businesses, AI companies, and the U.S. government, which is already facing a nearly $2 trillion federal budget deficit. The yield later edged back to 4.95% by midday.
Several factors are contributing to this rise, including escalating oil prices, growing jitters about artificial intelligence, and persistent inflation above the Federal Reserve's 2% target. Brent crude oil prices jumped as high as 4% on Monday, nearing $110 a barrel, the highest since May, partly due to intensifying conflicts in Iran. The two-year Treasury yield also rose to around 4.63%, signaling that traders anticipate at least one more Fed rate hike by the end of the year, despite policymakers expressing concern over the current yield levels.
This critical 5% threshold is viewed as psychologically important by market experts like Brij Khurana, a fixed-income portfolio manager at Wellington. The bond market turmoil is forcing investors to consider whether a new era of higher interest rates is emerging. Higher borrowing costs could negatively impact the tech sector, particularly chipmakers and hyperscalers, as it might lead to less bond issuance for financing and historically has been a headwind for stock performance. Some analysts warn that if the 10-year yield decisively breaches 5%, it could trigger a pop in the AI bubble.
