US Treasury Yield Surpasses 5% Amid Inflation Worries

The US 10-year Treasury yield has surpassed 5% for the first time since 2023, reaching as high as 5.01%. This milestone is significant because it marks a key psychological level for investors, according to Molly Brooks, US rates strategist at TD Securities.

The surge in yields was triggered by surging crude prices and concerns about inflationary pressures ahead of the Federal Reserve's decision this week. The rise in energy prices has had little sign of easing, prompting investors to watch whether 5% will again prove a line in the sand for 10-year Treasuries, as it did three years ago.

The increase in US 10-year yield threatens to slow economic growth and weigh on equities trading at lofty valuations. In response, US Treasury Secretary Scott Bessent has taken several unconventional steps aimed at bringing down yields, including opening the door to reducing long-term debt issuance.

Despite these efforts, the sell-off in bonds continues, with 10-year yields heading for their seventh month of increases, matching the longest monthly climb since 2011. The Treasury market has ballooned to about $32 trillion from around $4.5 trillion since 2007, pushing the federal debt to more than 100% of US GDP.

Zach Griffiths, head of investment-grade and macro strategy at research firm CreditSights, believes that ten-year yields could rise toward 5.5%. The market is also watching the Fed's policy announcement on September 16, with traders seeing a greater than 90% chance of a rate hike.