US Treasury yields soared to multi-decade highs, with the 30-year bond yield reaching 5.444%, its highest since 2004, and the 10-year Treasury yield hitting 5.15%, its highest since 2007. This surge was driven by data showing strong US economic growth and rising inflation pressures, leading traders to increase bets on Federal Reserve rate hikes. This included a report from S&P Global indicating US business output accelerated at the fastest pace in five years, and firms' input costs jumped at the steepest rate in four years, particularly due to fuel and transport costs.
The rising yields are also attributed to increasing oil prices, which hit $105 per barrel after a mediated US dialogue with Iran at the UN General Assembly showed no progress in ending the 7-month war. This conflict has significantly increased energy costs, with commercial diesel fuel prices up 73% and regular unleaded gas up 50% since its beginning. Federal Reserve Bank of New York President John Williams indicated that another rate hike might be appropriate by year-end to combat inflation, despite the US economy's resilience.
The bond sell-off has global repercussions, with Japan's 10-year bond yield reaching its highest since 1996 and Germany's 10-year bund hitting its highest since 2009. The higher borrowing costs are impacting consumers, especially in the mortgage market, and have led to declines in stock markets, with the S&P 500 down 0.5%, the Nasdaq Composite down 0.7%, and the Dow tumbling almost 300 points.
Treasury Secretary Scott Bessent's efforts to keep yields low, including buying back longer-dated Treasuries, have not been successful, as bond yields rose after his initial intervention. The rising government net interest expenses, now at a record high of 3.3% of GDP in Q2 2026, compared to 1.7% in 2007 when the 10-year yield was around 5%, suggest that yields might need to rise further before fiscal discipline is seriously addressed in Washington.
