The 10-year Treasury yield hit a peak of 4.982 percent on Thursday, its highest level in nearly three years.
The last time the yield was at this level was on Oct. 26, 2023. Yields have been rising since March after the U.S.–Iran war broke out on Feb. 28.
On Aug. 19, the Treasury announced an update to the size of bond buybacks from $2 billion per operation to at least $4 billion, effective Sept. 9. This applies to 10-year treasuries as well. At the time, the department said that the increase in buybacks is aimed at providing “greater liquidity support” to treasuries.
Treasury buybacks typically aim to ease upward pressure on yields. The market reaction of yields rising despite higher buybacks is a rejection of “government price engineering policies,” Jai Kedia, a research fellow at CATO Institute’s Center for Monetary and Financial Alternatives, said in a Sept. 9 statement.
“As long as the Treasury Department misdiagnoses the causes of high bond yields, those yields will continue to rise, and no amount of government fine-tuning can fix that. If the administration is serious about lowering yields, it must attempt to fix its own flawed policies like excessive spending, tariffs, and war,” Kedia said.
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Inflation is another concern for Treasury yields. The 12-month inflation rate rose from 2.4 percent in February to 4.2 percent in May following the outbreak of the Iran war. While the rate fell to 3.4 percent in July, any increase in inflation can push yields even higher. The inflation reading for August is scheduled for release on Friday.
Yield Trend, Mortgage Rates
Vikram Rai, senior economist at TD Economics, said in a Sept. 10 report that Treasury yields are expected to remain high for a longer period.
According to Rai, one factor behind rising yields is expectations that the Federal Reserve will keep its benchmark interest rate higher than previously forecast.
The next meeting is scheduled for Sept. 15–16. According to data from the CME’s FedWatch Tool, as of 5:30 a.m. EDT on Friday, interest rate traders are seeing a nearly 70 percent chance that the Fed may raise its rates to a range of 3.75–4 percent in the upcoming meeting.
Several factors should restrain surges in Treasury yields through the end of 2026, “including our expectation that U.S. core inflation and oil prices gradually moderate,” Rai said.
However, there are few signs that the structural pressures driving up yields, such as lower demand from traditional bond purchasers and heavy government and corporate borrowing, are fading.
“As cyclical pressures subside, these forces should keep yields elevated; with short-term rate expectations also likely to decline only gradually, the curve should remain relatively flat by historical standards. The scope for a significant and broad-based bond rally by year-end therefore appears limited,” Rai said.
Meanwhile, rising Treasury yields are also contributing to making mortgage loans more expensive for prospective homebuyers. One factor driving mortgage rates higher is surging bond yields.
The 30-year fixed-rate mortgage rate briefly fell below 6 percent in late February, but has since risen in tandem with an increase in the 10-year Treasury yield. The mortgage rate was at 6.76 percent for the week ending Sept. 9.
