The bond market spiral spirals out of control: 10-year yield surpasses 2007 level

The yield on the 10-year US Treasury bond has crossed the 5.3% threshold, a level not seen since 2002, surpassing the 2007 peak. The 30-year yield also surged to 5.6%. The sharp rise is driven by concerns over persistent inflation, high energy prices, and the continued growth of US debt. The article notes that those who bought bonds during the pandemic at a 0.4% yield are now facing a capital loss of about 35%.

The US bond market continues to flash serious warning signs. The 10-year Treasury yield has crossed the 5.3% threshold, a level not seen since 2002 and surpassing the level recorded in 2007, before the financial crisis. At the same time, the 30-year bond yield has crossed the 5.6% mark—both levels not seen in about 24 years. The sharp rise reflects a combination of factors: concerns over persistent inflation, rising energy prices, the strength of the US economy, and expectations that US interest rates will remain high for an extended period. Alongside this, the market is grappling with the scale of US debt and the government's need to continue issuing large amounts of bonds to finance the deficit. The article illustrates the drama with a scenario: an investor who bought bonds in March 2020 at a 0.4% yield for $100, and now seeks to sell when the yield stands at 5.3%, would receive about $65-66—a capital loss of 34%-35%. The surge in yields is not confined to the bond market; it affects financing costs across the entire economy, including the mortgage market, credit costs for businesses, and companies needing to refinance debt. A yield of over 5% on government bonds makes the safe-haven asset more attractive and could put additional pressure on risk assets.