The yield on the 10-year Treasury note topped 5% in trading on Monday, briefly reaching 5.01%, the highest level since October 2023. The rate eased modestly later in the day as bond buyers emerged, closing at 4.99%.
Bond yields have been moving higher lately, with the 10-year yield roughly a full percentage point higher than before the start of the Iran war. Monday’s spike comes ahead of the next meeting of the Federal Open Market Committee on Tuesday and Wednesday of this week, and expectations are running high that the Federal Reserve will raise its own benchmark rate amid growing concerns about persistently above-target inflation, surging energy prices due to the war and a flood of corporate debt issuance related to the massive infrastructure buildout for artificial intelligence.
The spike also comes soon after Treasury Secretary Scott Bessent dared investors to resist his efforts to intervene in the currency and bond markets, with one of his goals being to rein in interest rates as a means of providing relief to consumers facing an affordability crunch. (“I am the house now,” he said in comments last week. “You can bet against me if you want.”) But as Alan Rappeport of The New York Times put it Monday, “Sometimes the house doesn’t win.”
Referred to as the “affordability” yield, since it serves as a benchmark for all kinds of consumer credit rates, including mortgages, credit cards and car loans, the 10-year rate is a key measure for investors. If the rate moves solidly above 5%, investors could downgrade their profit outlooks as the higher cost of borrowing ripples through the economy, pressuring the bull market in equities.
Some analysts think higher rates are coming. Zach Griffiths, head of investment-grade and macro strategy at research firm CreditSights, said the yield on the 10-year could hit 5.5%. “There are a lot of underlying factors that make for a sustained selloff in rates as the path of least resistance for now,” he said, per Bloomberg.