10-Year Treasury Yield Surpasses 5% Mark, Highest Since 2007

The benchmark 10-year Treasury yield breached the significant 5% threshold on Monday, marking its highest intraday level since July 19, 2007. According to Dow Jones Market Data, the “affordability” yield climbed as high as 5.011% amid a confluence of rising oil prices, growing anxiety over the artificial intelligence sector, and increased investor demand for safe-haven assets.

Brij Khurana, a fixed-income portfolio manager at Wellington, described the 5% mark as a psychologically critical juncture. He warned that the Federal Reserve risks losing control over long-dated yields if it fails to raise interest rates at its upcoming Wednesday meeting, citing the 2022 UK gilt crisis as a cautionary parallel.

The selloff in the $31.5 trillion Treasury market is escalating borrowing costs across the economy, affecting households, businesses, hyperscaler AI companies, and the U.S. government. These financial pressures coincide with a federal budget deficit projected to near $2 trillion for the year.

Market participants are also pricing in potential rate hikes, with the policy-sensitive 2-year Treasury yield rising to 4.66%. This figure sits well above the 3.75% upper limit of the Fed’s current target range, signaling trader expectations for at least one additional increase by year-end.

Economic indicators continue to strain monetary policy. U.S. inflation remains above 3%, exceeding the Fed’s 2% annual target, while crude oil prices surged toward nearly $109 a barrel due to intensifying conflict involving Iran. Meanwhile, equities faced headwinds from concerns that safety regulations could force an AI industry slowdown, though software stocks in the iShares Expanded Tech-Software Sector ETF gained 3.2%.

The U.S. dollar provided some relief as a safe haven, with the ICE U.S. Dollar index climbing 0.5% against a basket of rival currencies, reversing a trend of weakness seen during the summer bond market sell-off.