The 10-year Treasury yield reached 4.982 percent on Thursday, its highest level in nearly three years, as borrowing costs have continued a sustained rise that began when the U.S.-Iran conflict started in late February.
The last time the yield was at this level was Oct. 26, 2023. The yield opened at 3.932 percent on March 2 and has risen more than 25 percent since then. The Sept. 11 high came after rates also rose on Sept. 9 and 10 following a Treasury Department announcement that it would buy back $6 billion in long-dated government debt.
The Treasury had previously announced in August that it would expand bond buybacks from $2 billion per operation to at least $4 billion effective Sept. 9, describing the increase as aimed at providing greater liquidity support to the Treasury market. The 10-year is included in that program.
The market reaction
Bond buybacks are typically used to reduce upward pressure on rates. The fact that they rose despite the buyback expansion represents a market signal that investors are not convinced the intervention addresses the underlying causes.
Jai Kedia, a research fellow at the Cato Institute’s Center for Monetary and Financial Alternatives, said in a Sept. 9 statement that the market reaction amounts to a rejection of government price engineering policies. He said the Treasury Department is misdiagnosing the causes of high rates and that no amount of government fine-tuning can fix that. He said if the administration is serious about lowering rates, it must address what he characterized as excessive spending, tariffs and war.
What the 10-year rate represents
The 10-year rate is a benchmark for borrowing costs across the U.S. economy. Mortgage rates, corporate bond rates, auto loan rates and many other financial products price themselves relative to the 10-year. A rate at 4.982 percent translates into higher costs for home buyers, businesses and governments at every level.
Rates rise when investors demand more return on U.S. government debt, which happens when they are uncertain about inflation, fiscal conditions or the government’s creditworthiness relative to alternative investments. The conflict has added an oil price and fiscal risk dimension to that uncertainty since February.
This level has not been seen since late 2023, when the Federal Reserve was near the peak of its rate-hiking cycle. The combination of an active military conflict, persistent inflation and a large federal deficit creates the conditions for rates to remain elevated even as the Fed has kept its policy rate on hold.
