US 10-Year Treasury Yield Tops 5.02%, Highest Since 2007
Summary
- The US 10-year Treasury yield climbed to 5.02%, its highest level since 2007.
- Markets said further gains in long-term yields remain possible depending on whether the Fed raises rates, holds rates steady, and how it signals the future rate path.
- Room for long-term yields to fall is limited due to expanded Treasury supply, borrowing to fund greater AI investment, and weaker demand for US Treasuries from the foreign public sector.
Forecast Trend Report by Period
The yield on the US 10-year Treasury note surged to its highest level since 2007 as a jump in Middle East-driven energy prices, inflation worries and heavier government debt supply combined to hammer the bond market.
Bloomberg reported on Sept. 15 that the 10-year Treasury yield rose as much as 4 basis points during the session to 5.02%. That topped its 2023 high and marked the highest level since 2007.
Selling in the bond market intensified as international oil prices resumed their climb on fears of disruptions to crude supply from the Middle East. Since the US attacked Iran in late February, supplies of Middle Eastern crude and natural gas have been unsettled, keeping persistent upward pressure on global sovereign bond yields.
Markets are now focused on the Federal Reserve's rate decision due on Sept. 16. Investors expect the Fed to raise its benchmark rate for the first time since July 2023. Some in the market also see scope for long-term yields to rise further if the Fed leaves rates unchanged or if Fed Chair Kevin Warsh presents a more dovish path for future rates than investors anticipate.
Veale Hartman, a strategist at BMO Capital Markets, said it would be very difficult for the Fed to leave rates unchanged this week without undermining confidence in its fight against inflation. An unexpected pause, along with a “dovish hike” that signals a slower pace of future tightening, could also weigh on the bond market.
An increase in Treasury supply is also fueling the rise in yields. Governments are boosting issuance to refinance maturing debt and fund fiscal deficits. At the same time, large-scale corporate borrowing to expand investment in artificial intelligence is adding to supply pressure in the bond market.
Phoebe White, head of US rates strategy at UBS, said there is limited room for long-term yields to fall because the real economy has yet to show clear signs of weakening and the Treasury market's supply-demand structure differs sharply from 2007. Structural demand for US Treasuries from the foreign public sector has weakened considerably, she added.
Suehyeon Lee
shlee@bloomingbit.ioI'm reporter Suehyeon Lee, your Web3 Moderator.