10-year Treasury yield reaches 2007 peak as investors price in Fed hike

The yield on the 10-year Treasury note climbed to roughly 5.04% on Tuesday, the highest level recorded since 2007, and the 30-year note touched 5.39%. The rise comes ahead of the Federal Reserve’s policy decision later this week, with market participants assigning a 92% probability to a 25-basis-point rate hike at the Wednesday FOMC meeting.

Higher yields are being driven by several factors, including oil prices that have stayed above $100 a barrel, which raises concerns that inflation could stay above the Fed’s 2% target. TradeNation senior market analyst David Morrison said investors are demanding compensation for the large amount of government debt and the growing deficit.

The 10-year Treasury serves as a benchmark for mortgage rates, long-term borrowing and corporate debt. Some strategists point to a resilient economy supported by artificial-intelligence investment and strong corporate earnings. Morrison added that U.S. economic growth is impressive and that current bond yields are comparable to levels seen before the 2008 financial crisis, after which the Fed pursued an extended period of low-rate policy.

The increase in borrowing costs is not limited to the United States; yields have risen in Japan, the United Kingdom and Germany as well. Analysts note that the shift may also reflect a reduction in the yen carry trade, where investors borrowed cheaply in Japan to invest in higher-yielding assets abroad; a stronger yen and higher Japanese rates make that strategy less attractive.

Corporate issuers are also adding to bond supply as they raise debt to fund spending and AI infrastructure projects. BMO Wealth Management chief market strategist Carol Schleif said that, although the yield rise this year has been orderly and gradual, the elevated levels could persist for some time.