10-year yield closes in on 5% as bonds keep falling

The US government bond market is coming under growing pressure as rising oil prices and inflation fears push Treasury yields higher.

The 10-year Treasury yield climbed to 4.943% Thursday, its highest closing level since October 2023. The 30-year Treasury yield also moved above levels last seen about two decades ago, increasing concerns about borrowing costs.

Oil’s rally showed little sign of slowing. After topping $100 a barrel the previous day, prices climbed Thursday again following a Wall Street Journal report that the White House was preparing for a war with Iran that could last until 2029.

With Saudi Arabia’s oil production at its lowest level since 1990, US crude rose to about $103 a barrel, while Brent crude climbed to around $108. Both reached their highest closing levels since May 19.

Climbing energy prices can push inflation higher, making investors worry that the Federal Reserve may keep interest rates elevated for longer.

The rise in oil prices also pushed bond yields higher. Investors demanded greater returns for holding US government debt because of growing inflation risks.

Treasury Secretary Scott Bessent has tried to slow the rise by increasing government purchases of longer-term Treasury bonds. However, yields have continued climbing despite those efforts.

Higher Treasury yields can raise the cost of mortgages, corporate loans and other debt. The average 30-year mortgage rate rose to 6.76% this week.

Stocks have also started to weaken. The S&P 500 and Dow Jones each fell 0.6% Thursday, while the Russell 2000 dropped about 1%.

Investors now await today’s inflation report, which could influence the Fed’s next rate decision and determine whether pressure on bonds and stocks intensifies. Markets now see a 73% chance of a Fed hike next Wednesday, up from 49% last week.