10-Year Treasury Yield Touches 5% for First Time Since 2023

The 10-year Treasury yield briefly broke 5% on Monday before pulling back, as oil-driven inflation fears and AI stock losses pressure markets ahead of a Fed hike.

The 10-year Treasury yield breached the 5% level during Monday morning trading for the first time in nearly three years, up from 4.96% late Friday and just 3.97% before the war with Iran began in February. According to CNBC, the yield touched 5.014%, its highest level since October 2023, before paring gains to 4.987% by the afternoon. The 30-year Treasury yield sat at 5.353%, while the 2-year rose to 4.658%. The move came alongside a slide in AI stocks and a climb in Brent crude toward $110 per barrel before it pulled back to about $105.

CNN notes the 5% level was briefly touched in 2023 and otherwise not seen since 2007, when the yield last rose firmly above 5%. Analysts see the shift as confirmation of a 'normal for longer' rate regime: Luis Alvarado of Wells Fargo Investment Institute told CNN these factors are here to stay, five years after the 10-year traded at just 1.3%.

Multiple forces are converging on the bond market. CNN reports yields are rising as soaring energy prices push central banks toward rate hikes — the European Central Bank raised rates last week, its second hike this year — while investors grow skeptical of bloated government budgets and mounting deficits amid uncertainty about the war with Iran. Brent crude has jumped from less than $72 in early July to about $105 after a key Saudi oil pipeline was knocked out of service, and gasoline has climbed to nearly $4.32 a gallon from $3.18 a year ago. CNBC attributes the rise partly to a supply-demand imbalance, with heavy Treasury and corporate debt competing for investor capital and lifting the term premium.

Treasury Secretary Scott Bessent has tried to contain pressure at the long end of the yield curve using an expanded bond buyback program, but CNBC reports such measures have limited ability to constrain yields against fundamental forces — and against the roughly $1.2 trillion a day that changes hands in the Treasury market. BMO Capital Markets strategists said a more active buyback program could help limit selling pressure but 'fails to address the prevailing fundamental drivers of the upward pressure on 10- and 30-year yields.' CNBC also flags leveraged hedge-fund exposure in the Treasury market, which could amplify any sell-off if funding costs or volatility force simultaneous position unwinds.

Despite the yield surge, equity losses have been modest: the S&P 500 fell just 0.2% on Monday and remains up more than 10-11% for the year, as gains outside AI — Intuit up 4.8%, Autodesk up 7.8%, Adobe up 4.6% — offset Nvidia's 2.8% drop and a 10.7% slide for Softbank in Tokyo after AI leaders called for a development slowdown. Jason Ware of Albion Financial Group told CNBC he doesn't expect markets to break simply because the 10-year moves above 5%, warning stocks are more vulnerable to a slowdown in consumer spending or AI investment. All eyes now turn to the Fed, which meets Tuesday and Wednesday; CNBC reports odds of a quarter-point hike stand at 92.3% per CME Group's FedWatch tool.