10-Year Treasury Yield Hits 24-Year High as Global Bond Pressures Build
By Tom LoBianco | Quincy News Correspondent
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Washington (Quincy News) — The benchmark 10-year Treasury yield climbed to 5.342% Thursday, its highest level since 2002, extending a sharp rise in U.S. borrowing costs that has been echoed across global bond markets.
The 10-year posted its biggest quarterly increase since 1994 during the third quarter as investors confronted persistent inflation, rising energy prices, tighter monetary policy and a growing supply of government and corporate debt competing for capital.
Friday’s jobs report briefly eased some of that pressure.
Employers added just 29,000 jobs in September, while unemployment rose to 4.2% from 4.1%, the Labor Department reported. July and August job gains were also revised down by a combined 60,000.
Treasury yields initially fell as investors reduced bets on another Federal Reserve rate hike this month, but then turned higher again.
The 10-year Treasury is a key benchmark for borrowing costs across the economy, influencing mortgage rates, corporate financing and asset prices.
“It’s really this perfect storm,” said David Mitchell, professor of economics and director of the Bureau of Economic Research at Missouri State University.
Part of the debate centers on the Treasury Department’s expanding bond-buyback program.
Treasury announced in August that it would at least double the maximum size of its liquidity-support buybacks for longer-dated securities beginning Sept. 9, increasing the maximum from $2 billion to at least $4 billion per operation.
The program is designed to improve trading in older, less-liquid Treasury securities. It is not an effort to simply pay down the federal debt, since Treasury continues issuing new securities to finance the government.
Still, the timing led some market participants to view the expansion as an attempt to reduce pressure in the long end of the bond market. Yields continued higher after it was announced.
“Treasury can’t really do anything, and the fact they’re trying to do something, it doesn’t send a signal of confidence,” Mitchell said.
The Treasury Department did not return requests for comment for this article. But Treasury Secretary Scott Bessent has defended the program, arguing that yields might have risen further without the purchases and pointing to strong demand at subsequent Treasury auctions.
“We have a big toolkit, so we’ll see,” Bessent told CNBC in August. “Part of it is signaling here and to show that we believe that the yields don’t reflect the underlying fundamentals.”
Another major source of pressure has been the war with Iran.
The 10-year Treasury stood at 3.97% on Feb. 27, the day before U.S. and Israeli strikes on Iran began the current conflict. At Thursday’s peak, it had climbed roughly 137 basis points, or 1.37 percentage points.
Disruptions affecting the Strait of Hormuz and repeated flare-ups in the conflict have pushed energy prices higher, increasing concerns that oil and refined-product costs will keep inflation elevated.
“That’s a huge move in a short period of time and consumers are noticing the increase at the gas pump and it’s likely to be that way for a while,” said David Kass, a clinical professor of economics at the University of Maryland’s Robert H. Smith School of Business.
The Federal Reserve added to the pressure in September by raising its benchmark interest rate a quarter point to 3.75% to 4%, its first hike since 2023.
But recent economic reports are complicating the outlook. The Fed’s preferred inflation gauge rose 3.4% over the year in August, still well above its 2% target, while Friday’s weak employment report sharply reduced expectations for another rate increase at the Fed’s Oct. 27-28 meeting.
The rise in borrowing costs also extends far beyond the United States.
French 10-year yields have reached their highest levels since 2002, Britain’s 30-year borrowing costs touched 6% for the first time since 1998, and Japanese bond yields have reached multi-decade highs.
Investors globally are confronting persistent inflation, heavy government borrowing and another increasingly important source of debt: the artificial-intelligence boom.
Five of the largest AI “hyperscalers” — Alphabet, Amazon, Meta, Microsoft and Oracle — have issued about $220 billion in debt this year, more than double last year’s total, according to LSEG data reported by Reuters.
The companies are raising money to finance data centers and other AI infrastructure. That borrowing does not directly determine Treasury yields, but a surge in highly rated corporate bonds gives investors more alternatives and increases competition for capital.
Kass also pointed to changes in the Japanese yen carry trade, in which investors historically borrowed cheaply in yen to invest in higher-yielding assets elsewhere. Rising Japanese rates and a stronger yen have made some of those trades less attractive.
At the same time, Kass cautioned against viewing today’s yields as evidence of an economic crisis. The U.S. economy grew at a 2.2% annual rate in the second quarter, while unemployment remains at 4.2%.
“Historically, we’re at pretty much average levels,” Kass said.
What is unusual is the speed of the recent adjustment after years of much lower borrowing costs.
Friday’s jobs report showed how quickly expectations can shift. But the rebound in Treasury yields after their initial decline underscored a larger point: the forces pushing global borrowing costs higher extend well beyond any single economic report.
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