US Treasury yield highest since 2007 ahead of Fed’s interest-rate decision

The bond rout threatens higher borrowing costs worldwide and could pile further pressure on Washington’s $40 trillion debt The 10-year US Treasury yield has surged above 5% to its highest level in nearly two decades, extending a global bond sell-off driven by soaring energy prices, mounting government debt, and inflation fears.

The latest jump followed a surge in oil prices above $100 per barrel as the US war on Iran continues to threaten global energy supplies.

The rise, which took the 10-year Treasury yield to 5.04% on Tuesday – the highest since 2007 – threatens to drive borrowing costs higher in the US and beyond.

Treasury yields serve as a benchmark for mortgages, corporate debt, and lending across global markets.

The sell-off has put additional pressure on the US Federal Reserve ahead of its interest-rate decision on Wednesday, with investors expecting the first hike since July 2023.

Keeping rates unchanged or signaling a slower pace of tightening could drive bond yields even higher as investors seek protection against inflation, according to Bloomberg.

“It would be very difficult for the Fed to leave rates unchanged this week without eroding its inflation-fighting credibility,” BMO Capital Markets strategist Vail Hartman told the outlet.

Read more Trouble brewing in global bond markets: What to know Higher rates also make Washington’s roughly $40 trillion national debt increasingly expensive to finance.

The renewed bond rout has gathered pace as the Middle East conflict drives energy costs higher.

Brent crude has broken above $100 per barrel for the first time in nearly two months, raising concerns that more expensive fuel and transport could feed through to consumer prices and keep inflation elevated.

Washington’s borrowing needs are adding to the pressure.

Persistent budget deficits require the Treasury to sell large volumes of new debt, increasing the supply of bonds that investors must absorb.

As bond prices fall, yields rise to attract buyers, making future government borrowing more expensive.

Read more World’s biggest wealth fund eyes ditching $80 bn in US Treasuries The pressure has spread across major bond markets.