US Treasury yields remain above 5% amid ongoing selloff

The 10-year US Treasury yield briefly punched above 5% on September 15-16, touching roughly 5.04%, a level the bond market hasn’t seen since July 2007. It has since settled around 4.95%, but the message from fixed income markets is clear: the era of cheap money is over, and the bill is coming due.

The 30-year bond told an even more dramatic story, trading above 5.28% in mid-September. Year-to-date, the 10-year yield has climbed approximately 0.8 percentage points.

The Fed steps back in

The Federal Reserve raised the federal funds rate by 25 basis points to a target range of 3.75% to 4.00% during its September 16-17 FOMC meeting. It was the central bank’s first rate hike since 2023. Fed Chairman Kevin Warsh described inflation as “too high… for too long.” The Fed’s dot plot indicates market expectations of more tightening in the future.

What’s driving the selloff

Three forces are converging to push yields higher. First, inflation has remained stubbornly elevated. Second, oil prices have pushed above $100 per barrel, driven by geopolitical tensions that have constrained supply. Third, the US government’s borrowing needs remain enormous, and the Treasury has been issuing debt at a pace that demands higher yields to attract buyers.

Some market participants have begun taking profits after the sharp move higher, and a slight dip in oil prices has offered momentary relief. Analysts caution that without meaningful progress on inflation or a reduction in Treasury supply, yields could easily retest or exceed their recent highs.

The ripple effects are already here

Mortgage rates, which closely track the 10-year yield, are now at levels that price many buyers out of the housing market entirely. Corporate borrowing costs have spiked in parallel, squeezing companies that need to refinance debt or fund new projects.

For equity markets, higher yields present a gravitational pull. When risk-free government bonds offer 5%, the relative attractiveness of stocks diminishes. Growth stocks, which derive much of their valuation from future earnings discounted back to the present, are particularly vulnerable to a higher discount rate.

Bitcoin and the broader digital asset market face a familiar headwind. Higher real yields increase the opportunity cost of holding non-yielding assets. For crypto-native lending and DeFi protocols, when traditional finance offers 5% on the safest asset in the world, on-chain yields need to compensate for smart contract risk, liquidity risk, and regulatory uncertainty on top of that baseline.