TEN-YEAR TREASURY YIELD HITS 5% FOR FIRST TIME SINCE 2023 / THE FINANCIAL TIMES

Ten-year Treasury yield hits 5% for first time since 2023

Rise in US borrowing costs takes world’s most important financial gauge into perilous territory

Emily Herbert and Ian Smith in London and Kate Duguid in New York

US Treasury secretary Scott Bessent has in recent weeks sought to drive Treasury yields lower © Bloomberg

The 10-year US Treasury yield hit 5 per cent on Monday for the first time since 2023, as surging oil prices battered government bonds across the world and pushed the world’s most important financial gauge into dangerous territory.

The yield was up 0.04 percentage points at 5.01 per cent in morning trading on Wall Street. 

Yields rise as bond prices fall.

America’s 10-year yield acts as a benchmark for trillions of dollars in assets worldwide and its jump to 5 per cent is widely viewed as a worrisome threshold. 

Besides a brief rise to 5 per cent in 2023, the last time 10-year borrowing costs hovered above that level was in the lead-up to the 2008 financial crisis.

Five per cent “is seen by some as a threshold above which financial markets might go into meltdown”, said John Higgins, chief economic adviser on financial markets at Capital Economics.

“While we aren’t convinced that 5 per cent is that ‘magic’ number, higher Treasury yields would certainly pose a risk to the sustainability of the US public finances as well as threaten equities,” he added.

The sharp rise in Treasury and global yields this year has been fuelled by a surge of inflation set off by Donald Trump’s war in Iran, mounting public debts and huge issuance of bonds by tech companies to finance the AI boom.

The latest selling in bonds on Monday came as Brent crude, the international oil benchmark, jumped more than 4 per cent to $108.86 a barrel. 

Rising yields also added to pressure in equities markets that were also hit by the biggest AI companies calling for a slowdown in the development of the technology.

Wall Street’s tech-focused Nasdaq 100 index fell 1.4 per cent in morning trade on Monday following falls across bourses in Europe and Asia.

The Treasury move comes just two days ahead of a crucial Federal Reserve meeting where traders anticipate the US central bank will raise rates for the first time in three years in the face of growing inflationary pressures.

It marks a setback for US Treasury secretary Scott Bessent, who in recent weeks has sought to drive yields lower, including conducting a bond buyback operation that drew criticism from investors.

Bond investors were demanding greater compensation to lend to the US in response to growing uncertainty, including “erratic, reactionary policy” from the Treasury, said Guy Miller, chief market strategist at insurer Zurich.

Scott Chronert, US equities strategist at Citi, said the 5 per cent level was a “line in the sand”, adding that he would expect some “disruption” to the stock market.

Higher bond yields push up borrowing costs for businesses and households, putting more indebted parts of the economy under pressure, while also increasing the relative attractiveness of bonds.

“Higher yields are creating stiffer headwinds for global borrowers,” said Chris Turner, global head of markets at ING, adding that “when the higher cost of capital starts to show up in earnings forecasts and releases, that is probably when equities come under more broad-based pressure”.

The rise in Treasury yields has also reverberated globally. 

The global bond sell-off pushed 10-year gilt yields up as much as 0.09 percentage points to 5.44 per cent, their highest level since 2007.