The benchmark 10-year US Treasury yield briefly climbed above 5% on Monday, reaching its highest level since October 2023, as rising energy prices, strong economic activity and expectations for higher interest rates put pressure on government bond markets.
The yield touched 5.011%, according to Dow Jones Market Data, before retreating below the 5% threshold. The move marked another sign of growing concern among investors about inflation and government borrowing costs.
Bond yields rise when prices fall. Higher Treasury yields can increase borrowing costs across the economy, affecting mortgages, corporate loans and other forms of credit. They can also make government bonds more appealing compared with equities, particularly when stock valuations are elevated.
The latest increase came amid concerns over the growing supply of US government debt and heavy corporate borrowing connected to investment in artificial intelligence infrastructure. The US Treasury has also expanded its bond-buyback programme, offering last week to purchase up to $6 billion of debt maturing between 10 and 20 years. The amount was three times larger than the previous operation.
The yield on the 30-year Treasury bond remained near its highest level since 2007, highlighting the broader pressure on longer-term government debt.
European bond markets have also experienced a significant sell-off. France’s 10-year government bond yield climbed to 4.50% on Monday, while Italy’s equivalent yield reached about 4.40%.
Germany’s benchmark 10-year Bund yield rose as high as 3.538%, according to Dow Jones Market Data, marking its highest level in 15 years.
Energy prices have added to concerns about the outlook for inflation. Brent crude rose to about $107 a barrel on Tuesday, while US West Texas Intermediate traded near $103. Attacks on Saudi energy infrastructure and shipping in the Gulf have raised fresh concerns about supplies passing through the Strait of Hormuz.
The European Central Bank raised its deposit rate by 25 basis points to 2.5% last week and warned that inflation could remain above its target for an extended period. Financial markets are now pricing in at least one additional ECB rate increase this year.
Investors are also awaiting decisions from three major central banks. The US Federal Reserve is due to announce its decision on Wednesday, followed by the Bank of England on Thursday and the Bank of Japan on Friday.
A Reuters poll showed that 85% of economists expected the Federal Reserve to raise interest rates by 25 basis points. Money markets were pricing in a probability of about 93% for an increase.
The Bank of England is broadly expected to keep rates unchanged, with economists surveyed by Reuters unanimously forecasting no change. However, some analysts have warned that an unexpected increase remains possible.
The Bank of Japan is widely expected to raise borrowing costs as policymakers respond to inflation and economic conditions.
