NEW YORK — Long-term US borrowing costs have climbed to levels not seen in two decades. A global sell-off in government bonds, fuelled by inflation worries and expectations of tighter monetary policy, showed little sign of easing as the new week began.
The yield on the 30-year Treasury bond touched about 5.5% on Thursday and closed at 5.489%, its highest since June 2004. The 10-year yield, the benchmark for mortgages and many corporate loans, settled at 5.205%, its highest since June 2007. On Monday, Bloomberg reported that the two-year yield rose five basis points to 4.90% and the 10-year gained four basis points.
How the sell-off built
The turn accelerated on Wednesday. Stronger-than-expected business-activity data pointed to resilient growth and persistent price pressure. The 10-year yield had its biggest one-day jump since April 2025. Thursday brought fresh oil gains and more selling.
Several forces are converging. Energy prices have surged since the Iran war began, and this has kept inflation elevated. Investors are also uneasy about the volume of corporate borrowing being raised to fund AI infrastructure, and about the size of government debt. Above all, traders have been bringing forward their expectations of Federal Reserve rate rises.
The Fed raised rates on September 16. Since then, New York Fed President John Williams has called another increase by year-end reasonable, and Governor Michael Barr has said further policy adjustments are likely. Fed Chair Kevin Warsh has said the central bank still has work to do on inflation.
TD Securities strategist Gennadiy Goldberg argued that most of the rise in yields since March reflects higher expectations for Fed policy, with the rest split between stronger growth prospects and dearer oil.
A global, not just American, problem
Bonds are under pressure well beyond US borders. Japan’s 10-year yield reached its highest since 1996. Yields on British gilts and German Bunds also rose, with several European bonds hitting multi-year highs. Germany’s finance agency said it expects federal borrowing to hit a record €525.5 billion this year, and to rise further next year.
The US Treasury attempted to calm trading by buying back up to $6 billion of 20- and 30-year bonds on Thursday. That was its second long-dated buyback operation. Yields still climbed.
Why ordinary savers and borrowers should care
The 10-year yield has risen about 0.70 percentage point since the Fed’s June meeting and roughly 1.25 points since early March. Because many consumer and business loans are priced off Treasury yields, the effects spread quickly. Thirty-year fixed mortgage rates have topped 7%. Car loans, credit-card rates and company borrowing costs generally tend to move in the same direction.
Higher yields also change the appeal of saving. Anyone buying new government bonds now receives a substantially larger return than a year ago. Existing bondholders, however, have seen prices fall, since bond values move opposite to yields.
The next threshold
Strategists say the 10-year yield has already crossed 5% this month, a level reached only briefly in recent decades. Investors are now watching whether 6% could become the next pain point for markets and corporate America. Some economists have questioned how far the Fed can go. They note that monetary tightening works by slowing housing and dampening demand for labour, and that several measures of underlying inflation have cooled.
Much will depend on oil. If diplomacy over the Strait of Hormuz stalls, as it did over the weekend, inflation expectations may stay high and the pressure on bonds will continue. A credible route to reopening the waterway could ease it.
Yield figures are based on trading levels reported late last week and early Monday and will change as markets move.
