Yields on 10-year U.S. Treasury notes reached their highest levels since 2002 on Thursday, continuing a global sell-off in government bonds that has raised borrowing costs for consumers and businesses worldwide. The benchmark yield climbed as high as 5.34 percent before settling around 5.24 percent by the close of trading, marking its peak since 2007.
Similar trends were observed in other major markets, with the yield on 10-year French government bonds rising to 4.92 percent, also a level not seen since 2002. Italy and Japan experienced increases in their 10-year bond yields, while other regions showed mixed results. Rising yields correspond to falling bond prices, signaling decreased demand for government debt amid shifting investor expectations.
The upward pressure on yields is attributed in part to sustained inflationary pressures, heightened by elevated oil prices. Brent crude has traded above $100 per barrel despite increased outflows from the Middle East, reaching levels roughly 40 percent higher since the conflict with Iran began in late February. This has complicated monetary policy as central banks worldwide are reluctant to ease interest rates amid these inflation concerns.
Equity markets reacted cautiously to the surge in yields and oil prices, with the S&P 500 initially dipping before closing 0.2 percent higher on Thursday, the start of the fourth quarter. The index posted a modest 2 percent gain for the third quarter, driven in part by advances in artificial intelligence-related sectors. However, elevated yields have weighed on certain sectors sensitive to borrowing costs—utilities, for example, fell more than 13 percent over the quarter, and the Russell 2000 index of smaller companies declined 7.2 percent, ending a five-quarter streak of gains.
Analysts note that geopolitical tensions in the Middle East have significantly altered market dynamics. Mahmood Pradhan, a nonresident fellow at Brussels-based Bruegel and former deputy director at the International Monetary Fund’s European department, emphasized that central banks have resumed interest rate increases, raising financing costs for governments and limiting fiscal flexibility in the event of economic downturns.
Beyond geopolitical factors, rising global growth expectations fueled by artificial intelligence expansion are also contributing to higher yields. The development of data centers and AI infrastructure has led investors to anticipate that the Federal Reserve may need to maintain elevated rates to prevent economic overheating.
Additional upward pressure on yields stems from resurgent inflation and concerns over increasing public debt burdens that are becoming more expensive to service as borrowing costs rise. While bond prices fluctuated on Thursday, market participants suggest that these factors are likely to keep yields elevated in the near term, reflecting a complex interplay of growth prospects, inflation risk, and geopolitical uncertainty.