U.S. 10-year Treasury yield hits 2007 high as strong data and hawkish Fed fuel bond rout

U.S. Treasuries suffered their sharpest bout of selling in nearly 18 months on Wednesday, sending the 10-year yield to 5.113%—its highest level since 2007—after a combination of robust economic readings, rising oil prices, hawkish Federal Reserve messaging and a weak five-year note auction rattled the market. The selloff gathered pace as investors digested a renewed surge in inflation-sensitive signals. Brent crude climbed back above $103 a barrel after Iranian President Pezeshkian said Iran would not fully open the Strait of Hormuz while sanctions remain in place, undercutting hopes for easing tensions around the UN General Assembly. In recent months, Treasury yields have tracked oil closely, as higher energy costs risk feeding into broader inflation. The pressure intensified after the S&P Global U.S. Composite PMI showed business activity expanding at the fastest pace in more than five years, with job growth the strongest in over four years across services and manufacturing. RBC Capital Markets U.S. rates strategist Izaac Brook said the repeated attempt over the past six months to "find a ceiling" for yields has repeatedly failed, making it difficult for investors to stay constructive. The Fed's policy pivot also weighed. The central bank raised its target range for the federal funds rate to 3.75% to 4% last week, its first rate hike in three years. Fed Governor Barr reinforced expectations of further tightening, warning in a Chicago speech that inflation remains above the 2% goal with no clear or timely path back, and that risks to achieving the target have increased. HSBC rates strategist Dhiraj Narula said investors fear the Fed could keep hiking even if part of the inflation impulse stems from supply shocks. The day's decisive catalyst came at 1 p.m. local time, when the U.S. Treasury auctioned $70 billion of five-year notes to notably weak demand. The stop-out yield printed at 5.033%—the highest since 2006—and more than 3 basis points above pre-auction levels. By that measure, it was the second-worst five-year auction result since records began in 2018, behind only June 2022. Dealers were left taking an unusually large share, underscoring the lack of natural buyers even after the sharp price declines. SEI Investments' Sean Simko called the session a "triple punch": stronger data, poor Treasury demand and persistent global inflation concerns. The five-year yield rose as much as 20 basis points, breaking above the 4.99% peak set during the 2023 hiking cycle. The 10-year yield topped out near 5.13% before ending at 5.113%, up almost 17 basis points on the day—its biggest one-day jump since the market turmoil sparked by Trump's "Liberation Day" tariff policy in April 2025. The 30-year yield climbed to around 5.4%, the highest since 2007 and about 4 basis points below its highest level since 2004. Société Générale's Subadra Rajappa described the move as a "meltdown," saying the selling started abroad and accelerated once key yield levels broke, amplifying momentum. The repricing has rapidly shifted expectations for the Fed's path. The swap market is now fully pricing three 25-basis-point hikes over the next year and is heavily hedged for a fourth. If realized, the Fed's target range would rise to 4.75% to 5%. ABN AMRO Investment Solutions CIO Christophe Boucher said Wednesday's data could give policymakers room to reinforce a hawkish stance, adding to pressure at the front end of the curve. Rising yields are also spilling into the real economy, pushing up borrowing costs for mortgages, credit cards and private-equity deals funded with debt. Christopher Sullivan, CIO at United Federal Credit Union, said: "For many people, holding bonds here makes no sense." Investors also watched the Treasury's expanded buyback program, which Treasury Secretary Bentsen has highlighted as a tool to help ease long-term yields. The Treasury said Thursday's buyback operation targeting 20- to 30-year maturities will total $6 billion, matching the first expanded operation on Sept. 10. Markets had expected the amount to be at least $4 billion larger, and the announced size did little to change the direction of trading. Equities, by contrast, held up relatively well. Loop Capital Asset Management's Scott Kimball said risk assets appeared to be absorbing the rates shock, calling it largely an interest-rate-market problem. Bloomberg Markets Live senior macro strategist Brendan Fagan summed up the backdrop as a near-perfect storm for higher yields: strong growth, persistent inflation, uncertainty around energy dynamics and a hawkish Fed.