- US 10-year Treasury yield briefly crossed 5%, highest since October 2023
- Markets price in nearly 90% chance of a 25-basis-point Fed rate hike this week
- August consumer prices rose 3.4% annually, keeping core inflation above 2% target
US Treasury yields climbed sharply on Monday, with the benchmark 10 year yield briefly crossing 5%, its highest level since October 2023, as investors increasingly expect the Federal Reserve to raise interest rates this week.
The 10-year Treasury yield rose nearly 3 basis points to around 5.004%, crossing the closely watched 5% threshold. The 2-year yield, which is more sensitive to expectations for Fed policy, also moved higher, while the 30 year yield approached 5.4%.
The move comes ahead of the Fed's September 15 to 16 policy meeting, with the decision due on Wednesday.
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Markets are now pricing an almost 90% probability of a 25-basis-point rate hike, which would lift the federal funds target range from 3.50% to 3.75% toward 3.75% to 4%.
Stronger inflation has changed expectations around monetary policy. August consumer prices rose 3.4% annually, while core inflation remained above the Fed's 2% target. Rising oil prices have added another inflation risk after Brent crude climbed above $100 a barrel amid escalating Middle East tensions.
Goldman Sachs and JPMorgan have also turned more hawkish. Goldman now expects a 25 bps September increase, while JPMorgan sees quarter point hikes in both September and December.
Higher Treasury yields matter beyond bond markets. They can increase borrowing costs for households and companies, influence mortgage rates and make bonds more competitive with equities.
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The rise also adds pressure to government financing costs. For investors, the key question is whether the 5% yield reflects stronger economic growth or persistent inflation and fiscal concerns.
A sustained move above 5% could further test appetite for risk assets, particularly if markets begin pricing additional Fed hikes.
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