10-year Treasury yield hits 5.1% for first time in 19 years

By John Towfighi, CNN

New York (CNN) — The 10-year US Treasury yield surged Wednesday to reclaim its highest level in nearly two decades after new data depicted strong business activity and intensifying inflation concerns.

The 10-year yield surged 15 basis points to 5.11%, a fresh high for this year and the highest level since 2007.

The key yield helps set borrowing costs across the economy. As the yield rises, that pushes up the cost of mortgages, auto loans and business loans.

Yields rise when bond prices fall. Yields have surged this year as traders assess the path of inflation and the Federal Reserve’s benchmark interest rate, among other factors.

Bond yields jumped Wednesday morning after new economic data. Business activity in September accelerated at the fastest rate since July 2021, according to data from S&P Global. Meanwhile, input costs surged because of the rise in energy prices.

That raised bets that the Fed might continue raising interest rates to tamp down inflation, while having room to do so because of a strong economy. Odds for a Fed rate hike in October rose to 66%, up from 55% one day ago, according to the CME FedWatch forecasting tool.

The 10-year yield topped 5% earlier this month before pulling back in recent days – and then surging on Wednesday above 5.1%. The yield rose as high as 5.14% during trading before settling at 5.11%.

Bond yields shot higher across the curve, with two-year, 10-year and 30-year yields all jumping. The 30-year yield surged 11 basis points to 5.4%, a fresh high for the year. It’s the 30-year yield’s highest intraday level since 2007 but the highest closing level since 2004.

The two-year Treasury yield, which tracks expectations for central bank policy, surged about 16 basis points to hit 4.9%, its highest level since 2024.

“Overall, it was a much stronger-than-expected read on US business activity that implies ample latitude for both policy rates and Treasury yields to push higher in the near term,” Vail Hartman, US rates strategist at BMO Capital Markets, wrote in a note.

The five-year Treasury yield rose above 5% for the first time since 2007 after a regularly scheduled auction Wednesday.

Higher oil prices add to rise in yields

Yields were already ticking higher Wednesday morning as global oil prices moved higher. Oil and yields had pulled back and wavered in recent days before climbing on Wednesday.

The front-month contract for Brent crude rose 3.86% and settled at $103.08 per barrel, rebounding after falling for the past five trading sessions. Traders are monitoring developments in the Middle East and trying to assess whether disruptions to oil flows will clear up or persist.

“Today has been a perfect storm fueling the surge in bond yields across the curve,” said Chip Hughey, managing director for fixed income at Truist Advisory Services.

The rise in oil prices and bond yields knocked stocks: The S&P 500 fell 0.75%, and the Nasdaq Composite fell 1.1%.

Iran President Masoud Pezeshkian on Wednesday also told the United Nations General Assembly that Iran will not bend the knee to the United States as tensions continue over the Strait of Hormuz. Pezeshkian also said Tehran would not let the United States use the key shipping channel “to impose their aggressions upon us.”

“We cannot let some have free access and gain their interest from a waterway while at the same time using that waterway to impose their aggressions upon us, to impose insecurity upon us, to forbid us access to our own waterways,” Pezeshkian said at the summit in New York.

Treasury’s dilemma

At the start of the year, some Wall Street banks were forecasting that the Fed might cut rates this year. But the energy shock caused by the war with Iran and signs of a resilient economy have completely shifted the course of policy. The Fed this month raised interest rates for the first time since 2023.

At the start of the year, the 10-year yield traded at 4.15%. Now, the yield is at 5.11%.

“This is the market telling us we’ve entered a genuine re-tightening cycle,” said Tony Miano, global investment strategy analyst at Wells Fargo Investment Institute.

The rise in yields tightens financial conditions and makes the cost of borrowing more expensive. That can exacerbate concerns about affordability in an economy already defined by consumers feeling glum.

The Treasury Department has embarked on an increased buyback operation that can help tame a rise in yields. The Treasury on Wednesday announced it would conduct another buyback of up to $6 billion on Thursday, the second in a series of increased buybacks that allow for up to triple the size of a standard operation.

The Treasury on August 19 announced it would at least double the size of buybacks of long-term bonds from September to November. The standard operation is $2 billion, meaning the increased buybacks would be at least $4 billion.

The first of the increased buybacks occurred on September 10, when the Treasury bought back $5.2 billion in bonds, slightly below the upper limit of $6 billion but still more than double the standard size.

The Treasury Department buybacks are one tool in Secretary Scott Bessent’s kit to try and slow the rise in yields. However, analysts said the size of the buybacks isn’t enough to be consequential in the more than $30 trillion Treasury market, and won’t change the fundamental forces leading to higher yields.

“Surging energy prices and robust economic activity continue to outweigh the impact of the buyback program,” Hughey at Truist said.

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CNN’s Billy Stockwell contributed reporting.