The benchmark 10-year US Treasury yield briefly surpassed the crucial 5% threshold on Monday, hitting its highest intraday level since July 19, 2007, when it reached 5.069%. This surge marks a significant milestone in a global bond market selloff. By midday Monday, the yield had slightly receded to 4.95%.
This rise in yields is primarily attributed to several factors including escalating global oil prices, growing concerns about inflation which remains above the Federal Reserve's 2% target, and an expanding US federal budget deficit recently pegged at nearly $2 trillion. The increased risk to Middle East oil supplies has contributed to the spike in crude prices.
Analysts, like Brij Khurana, a fixed-income portfolio manager at Wellington, described the 5% mark as a "psychologically important level." The sustained selloff in the approximately $31.5 trillion Treasury market is expected to further elevate borrowing costs for households, businesses, including artificial intelligence companies known as hyperscalers, and the US government. Khurana also expressed concern that the Federal Reserve could lose control of long-dated yields if it doesn't raise interest rates at its upcoming meeting.
The policy-sensitive 2-year Treasury yield also remained elevated near 4.63%, significantly above the Fed's target policy range of 3.75%. This indicates that traders are anticipating at least one more Fed rate hike by the end of the year. The rising yields pose risks of higher costs for various loans, including home mortgages and car financing for Americans.
