U.S. 10-Year Treasury Yield Surges as Oil Prices Climb...Tops Psychological 5% Threshold (Comprehensive 2nd Report)

Oil Prices Surge as Iran War Drags On

Inflation Fears Push Yields Higher

5.012% Mark Reached for First Time Since 2023


Appeal of Risky Assets Drops

All Three Major U.S. Stock Indexes Decline

The yield on the U.S. 10-year Treasury note, which serves as the global benchmark for long-term interest rates, has surpassed the 5% mark. The possibility of a policy rate hike increased as inflationary pressures intensified following the Iran War, pushing yields above the psychological resistance level of 5%. Analysts attribute the surge to a significant increase in Treasury supply amid the U.S. government's massive fiscal deficit, along with intensified competition for funding driven by large-scale AI industry capital expenditures, which have heightened selling pressure in the Treasury market.

U.S. 10-Year Treasury Yield Tops 5%

According to electronic trading platform Tradeweb, on the 14th (local time), the yield on the U.S. 10-year Treasury note rose as high as 5.012% during trading in the New York bond market, up about 4 basis points from the previous session (1bp = 0.01 percentage points). This is the first time since October 2023 that the 10-year Treasury yield has exceeded 5%. Although it retreated slightly after the spike, the yield remained near the 5% level. Yields on the policy-sensitive 2-year Treasury and the 30-year Treasury also strengthened, trading at around 4.66% and 5.37%, respectively, intensifying upward pressure across the Treasury curve.

Expectations that the Iran War will last longer have lifted oil prices, fueling concerns about persistent inflation and driving yields higher. As consumer prices rise, the U.S. Federal Reserve—the nation's monetary policy authority—typically raises the federal funds rate through the Federal Open Market Committee (FOMC). In most cases, market interest rates increase ahead of actual rate hikes decided at the FOMC.

The Federal Reserve is scheduled to release the results of this month's FOMC on the 16th. According to CME FedWatch, the probability in the interest rate futures market of the Fed raising rates by 0.25 percentage points at this FOMC meeting climbed from 87.3% the previous day to 90.1%.

On the 5th, when the US New York Stock Exchange plunged (local time), a trader on the floor of the New York Stock Exchange (NYSE) showed a surprised expression while looking at the price board. New York, USA = Photo by Reuters.

Inflation Spurs Treasury Selloff

International oil prices have recently surged. Saudi Arabia has closed the “East-West Pipeline”—a key crude oil transport route that bypassed the Strait of Hormuz—sending global benchmark November Brent oil futures up more than 4% on the day, with prices surpassing $108 per barrel. U.S. August Consumer Price Index (CPI) data released on the 11th showed inflation still running well above the Fed’s 2% target, raising the likelihood of entrenched inflation. The August CPI rose 3.4% year-on-year, while core CPI, which excludes energy and food, increased by 2.4%.

In addition, a deepening supply-demand imbalance in the bond market has also pushed yields higher. The massive U.S. fiscal deficit, combined with a boom in large-scale bond issuance for investments in artificial intelligence (AI) infrastructure, has contributed to a glut of funding demand. To finance its large deficit, the U.S. government has ramped up Treasury issuance. The Treasury Department has projected that net marketable borrowing from the private sector for the third quarter alone will reach $739 billion. The U.S. Treasury market, valued at about $4.5 trillion in 2007, has now expanded to around $32 trillion. In addition, big tech companies are issuing more corporate bonds to finance investments in AI infrastructure such as data centers and semiconductors. With both the government and corporations competing for limited market funds, the term premium—the extra yield demanded by investors for taking on long-term investment risk—has risen steadily.

Jack Griffiths, Head of Investment Grade and Macro Strategy at CreditSights, said conditions are in place for continued selling pressure on Treasuries, suggesting that the yield on the 10-year could rise to 5.5%. Should the current trend persist, U.S. Treasuries are set to record an annual loss for the first time since 2022, meaning capital losses due to bond price declines could outpace interest income for investors over a 12-month period.

Bessent Put to the Test

With Treasury yields breaching the psychological threshold, U.S. Treasury Secretary Scott Bessent is facing a major test as he works to stabilize long-term rates. In an effort to add liquidity to the long-term Treasury market, the Treasury Department last month at least doubled the cap for 10- to 30-year buybacks from $2 billion to a minimum of $4 billion per operation. Last week, it conducted buybacks of up to $6 billion in 10- to 20-year Treasuries.

However, the market believes that the scale of the buybacks is insufficient to offset Treasury supply and inflationary pressures. In particular, the Treasury is also raising cash for buybacks by issuing new Treasuries. The buyback program essentially involves issuing Treasury bills (T-Bills) to raise funds for purchasing long-dated bonds, which does not reduce the net supply of Treasuries. This measure merely changes the maturity structure (duration) and is inadequate to effectively contain the rise in long-term yields.

Scott Bessent, U.S. Secretary of the Treasury, is arriving at Incheon International Airport on May 13, 2026. Photo by Dongju Yoon

The 10-year yield is the benchmark not only for government and corporate bonds worldwide, but also for U.S. mortgage rates and corporate lending rates. When this rate rises, the interest burden on households and businesses increases, leading to potential contractions in consumption and investment. Now that investors can expect a 5% annual return on risk-free U.S. Treasuries, the relative appeal of riskier assets such as stocks has diminished.

All three major U.S. stock indexes traded lower in New York on the day. In particular, shares of AI-related semiconductor companies fell sharply. Technology stocks, which have enjoyed high valuations based on expectations of strong growth, are particularly vulnerable to rising long-term rates. As yields rise, the present value of companies’ future profits declines, and the relative attractiveness of bonds increases.

Scott Chronert, U.S. Equity Strategist at Citigroup, described the 5% level on the 10-year yield as the market’s “Maginot Line,” warning that the stock market could face a short-term shock.

This content was produced with the assistance of AI translation services.