Treasury Yields Hit 5.3 Percent, Highest Since 2007
The US 10-year Treasury yield touched 5.3% on Tuesday, its highest level since 2007, before settling at 5.24% on Wednesday. The two-year yield tested 4.97% on Tuesday, its highest since May 2024, and closed Wednesday at 4.9%. It has climbed more than 60 basis points since March, reaching 5%. Economic resilience and stubborn price pressures have strengthened expectations that the Fed will keep raising rates.
FED, ECB AND BOJ FAIL TO CALM MARKETS
The Fed lifted its policy rate by 25 basis points in September to 3.75-4%, its first hike since 2023. That move, along with hawkish steps from the European Central Bank (ECB) and the Bank of Japan (BoJ), failed to ease inflation worries and pushed investors to demand higher real interest rates.
Markets now expect central banks worldwide to speed up policy tightening as oil prices rise. Energy supply fears are growing across regions, driven by Middle East tensions and the Russia-Ukraine war, where attacks on energy facilities are adding to inflationary pressure.
Continued AI investment is expected to lift potential growth through productivity gains. But AI-related developments, combined with inflation that remains uncontained, are fueling volatility in bond markets.
Analysts warn that Treasury yields serve as a benchmark for global markets, directly raising borrowing costs on assets from corporate debt to consumer mortgages.
ANALYST: AI REWRITING BOND MARKET RULES
Sant Manukyan, deputy general manager at IS Investment, told Anadolu that AI is accelerating real growth and changing bond market dynamics.
He said the Atlanta Fed projects strong third-quarter growth of around 5%, equal to nominal expansion of roughly 7% once inflation is included.
"We’re seeing shifts in portfolios due to heavy long-term borrowing of AI companies as investors are opting to buy fewer US Treasuries and opt for the corporate bonds of these firms that are heavily indebted over the long term," he said. "We’re also seeing that inflation expectations are not as dominant a factor in the selling pressure on the bond market as is often suggested."
Manukyan said worsening inflation expectations played a part in the yield rise to a degree, but concerns about US debt dynamics remain in play.
He added that the spike reflects a broader global realignment, with investors moving away from traditional safe havens. As evidence, he pointed to yields on 10-year French government bonds, which recently began to exceed Italian yields for the first time in an extended period.
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