Bond selloff drives Treasury yield near 5%, raising fresh concerns about US borrowing costs

The 10-year US Treasury yield climbed to 4.943% on September 10, flirting with the psychologically important 5% threshold for the first time since October 2023. The 30-year yield went even further, touching 5.37%, a multi-decade high that hasn’t been seen since 2001.

What’s driving the selloff

First, oil prices have surged above $100 per barrel, with Brent crude exceeding $107 amid ongoing conflict in the Middle East. Energy costs feed directly into inflation expectations, and when prices rise, the fixed payments from bonds become less valuable in real terms, so sellers pile in.

Second, inflation itself remains stubbornly above the Federal Reserve’s target rate. The Consumer Price Index data released on September 11 came in roughly in line with expectations, which provided a brief moment of relief and nudged yields down slightly to 4.93%.

Third, the US government is issuing an enormous amount of debt. The federal deficit is tracking near 6% of GDP. President Trump’s announced $5,000 check plan is estimated to add over $1 trillion to the deficit, further swelling the supply of Treasuries that investors need to absorb.

The auction tells the story

A Treasury buyback operation accepted only $5.2 billion against a $6 billion target. Meanwhile, a $22 billion auction of 30-year Treasuries cleared at a yield of 5.308%, the highest auction yield for that maturity since 2001. The European Central Bank added to the global pressure by raising its main interest rate to 2.5% on September 10.

What this means for the real economy

The most immediate casualty is housing. Thirty-year fixed mortgage rates have climbed to around 7%, their highest level in over a year.

Markets are pricing in roughly a 67-72% probability of a Federal Reserve rate hike at the September 16 meeting. That’s a remarkable shift from earlier in the year, when many investors were still hoping for cuts.

When risk-free Treasury yields approach 5%, stocks need to offer a compelling reason for investors to accept the additional volatility. The comparison to October 2023, the last time yields touched these levels, is instructive: the breach of 5% on the 10-year triggered a sharp equity selloff before yields eventually retreated.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.