The 10-year Treasury yield, a benchmark that influences mortgage rates and other borrowing costs, rose briefly above 5 percent on Monday — well above the 4.4 percent rate that the nonpartisan Congressional Budget Office used in February for financial projections through the next few decades.
The 5-percent milestone, last recorded in 2023, deepened worries that rising borrowing costs will make things like car loans and mortgages more expensive, squeezing households and businesses, while also swelling the cost of paying interest on a national debt that passed $40 trillion last month.
Bond yields reflect the interest rate investors demand when buying and holding government debt. Treasury yields act as reference points for rates throughout the economy; higher bond yields can therefore mean higher interest rates for businesses and consumers.
Higher rates also raise the U.S. government’s interest payments on the national debt. This year, those payments already will exceed $1 trillion, more than national defense spending.
“High debt is driving up interest rates, and high interest rates are driving up the debt,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan group that pushes for lower deficits, said in a statement. “If 5% interest rates aren’t a wake-up call, I don’t know what will be,” she added.
Bond sell-offs in recent weeks have come amid surging public debt in the United States, Europe, Japan and Canada; renewed conflict in the Middle East; competition for borrowing from artificial intelligence firms racing to build data centers; and uncertainty about the Federal Reserve’s intentions on interest rates. When investors sell bonds, prices fall, which drives yields up because buyers are paying less for the same fixed interest payments.
Monday’s jump reflected “a continuation” of recent pressures, spurred forward by investors betting that central banks in the U.S, the euro zone, Britain and Japan will raise interest rates, said Lawrence Gillum, chief fixed income strategist at LPL Financial. The European Central Bank raised rates last week and traders are betting on more increases, he said.
“It looks like markets are pricing in a number of different rate-hiking campaigns out of these central banks, and that’s pushing yields higher globally,” Gillum said.
When rates rise, the value of bonds that investors already hold falls, because newly issued bonds offer higher yields, making older ones less attractive. So when investors expect central banks to raise rates, they tend to sell bonds ahead of time, pushing yields up.
The Fed is likely to raise rates this week and perhaps a couple more times over the next two to three quarters, Gillum and other investment analysts say. Gillum said he does not see this week’s bond prices as cause for panic.
“We’ve been calling this a normalization, not a crisis,” Gillum said of rising bond yields, “because if you look at the volatility in the bond market, it’s still relatively subdued.”
“It’s been pretty orderly for now, but if yields continue to move higher, we could see a disorderly move, and that would be an issue,” he said. “Right now we’re not there.”
For investors, Gillum said, 5 percent could be a buying opportunity. Bond yields move inversely to their prices, so when investors sell off Treasuries, yields rise.
When the 10-year yield hit the 5 percent level in 2023, it “brought in some buyers,” and the increased demand caused the rate to fall back below 4 percent, he said. But this time could be different, he cautioned. In 2023, inflation was easing and the Fed appeared ready to pause or cut rates.
Still, Gillum said LPL’s view is that “inflation progress has been delayed, not derailed, so we do think that a 5 percent yield is a pretty attractive one.” By Monday afternoon, the yield had slipped to about 4.97 percent, he said.
Treasury Secretary Scott Bessent has played down recent bond-yield rises and taken steps to soothe the market. “The U.S. bond market has been the best performing bond market in the world since President Trump came in,” Bessent told a gathering at the Southern Methodist University Cox School of Business in Dallas last week.
White House spokesman Kush Desai noted Monday that before the U.S. and Israel’s attack on Iran in February, 10-year yields had declined by about half a percentage point since Trump took office.
“President Trump has always been clear about temporary market disruptions as a result of the conflict in Iran,” Desai said in an emailed statement. “The Administration remains focused on slashing waste, fraud, and abuse in federal spending while accelerating economic growth to get America’s debt-to-GDP ratio trending in the right direction.”
Jessica Riedl, a fellow at the Brookings Institution and a former chief economist to then-Sen. Rob Portman (R-Ohio), also pointed to the war with Iran as one reason for elevated yields and blamed recent bond gyrations on Trump.
“That’s what happens when a president launches a war, blows up deficits, and then demands to borrow $1.3T more,” Riedl wrote on X.
Riedl was referring to the president’s announcement last week that he will issue every American adult a $5,000 check if Republicans hang on to both chambers of Congress in the November midterm elections. Economists have put the cost of those checks, which the U.S. government would presumably have to borrow, in the ballpark of $1.3 trillion.
Riley Beggin contributed to this report.
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