The benchmark yield, which influences borrowing costs for mortgages, auto loans and credit cards, climbed more than 2 basis points to 5.00%, its highest level since October 2023.
The 2-year Treasury yield, which is more sensitive to expectations for short-term Federal Reserve policy, also advanced more than 2 basis points to 4.666%. It touched its highest level since July 2024 last week, according to a CNBC report.
The yield on the 30-year Treasury bond, which is more exposed to long-term inflation and geopolitical risks, rose 2 basis points to 5.374%. A basis point is equal to 0.01 percentage point. Bond yields and prices move in opposite directions.
Inflation and Fed decision in focus
The latest moves in the bond market came after August consumer price index data released on Friday matched expectations but remained well above the Federal Reserve’s 2% inflation target.
The report was the final major inflation indicator available to the central bank before its policy meeting on Tuesday and Wednesday. Markets are currently pricing in a roughly 90% probability of a 25-basis-point rate hike, according to the CME Group’s FedWatch tool.
The 10-year yield’s move to the psychologically important 5% mark has also renewed focus on the next key threshold. A rise above 5.02% would take the yield to its highest level since July 2007, before the Global Financial Crisis of 2008–09.
The implications of higher yields, however, depend on what is driving the increase. A rise linked to stronger economic growth could have different consequences for stocks and the wider economy than one driven by resurgent inflation, widening government deficits or stress in the Treasury market itself.
Concerns over long-term borrowing costs
US Treasury Secretary Scott Bessent has sought to ease pressure at the longer end of the yield curve through an expanded bond buyback programme. However, such measures have limited power to counter the fundamental forces pushing yields higher, particularly in a Treasury market where around $1.2 trillion changes hands each day.
Strategists at BMO Capital Markets said a more active buyback programme could help limit selling pressure, but “fails to address the prevailing fundamental drivers of the upward pressure on 10- and 30-year yields”, as reported by CNBC.
A disorderly rise in yields caused by stress within the Treasury market would be more concerning, given its potential to amplify volatility across financial markets.
George Awad, principal at Gibraltar Capital, has highlighted the leveraged exposure of hedge funds in the Treasury market, including trades based on spreads between cash bonds and futures.
Higher funding costs, increased margin requirements or a sharp rise in volatility could force leveraged investors to unwind positions simultaneously, potentially intensifying a bond-market sell-off.
Equities have so far remained resilient
For now, investors appear willing to tolerate higher yields. BMO strategists noted that when the 10-year yield reached 4.85%, weakness in equities remained modest and the S&P 500 was still up more than 11% for the year, CNBC reported.
However, a sustained rise in borrowing costs could eventually place greater pressure on equity valuations, particularly if yields climb because of inflation fears, fiscal concerns or instability in the Treasury market.
Oil prices rise as US stocks retreat
Oil prices climbed on Monday after Saudi Arabia shut a key pipeline that bypasses the Strait of Hormuz, adding to concerns over global energy supplies amid heightened Middle East tensions. West Texas Intermediate crude rose 3% to above $103 a barrel, while Brent crude gained 4.5% to above $109.
The rise in oil prices added to pressure on US equities, with investors also weighing concerns over a potential slowdown in artificial intelligence development. The S&P 500 fell 0.6%, the Nasdaq Composite declined 0.9%, and the Dow Jones Industrial Average slipped 160 points, or 0.3%. AI-linked stocks led the decline, with Nvidia and Broadcom losing 3% each, while Advanced Micro Devices and Intel fell 5% apiece.
