US 10-year yield breaks its 2007 peak above 5.3% before weak jobs data pares the move
The yield on the 10-year US Treasury note closed at 5.297% on 30 September, up 4.2 basis points on the day, after touching 5.304% intraday and surpassing the 2007 cycle peak, according to 24/7 Wall St. In the days that followed the benchmark pushed as high as roughly 5.34%, a level not seen since 2002, before retreating, ROIC reported. The move marks a clear break with the range that had held through most of the post-2022 tightening era.
Several forces converged. Inflation remains above target, with August personal consumption expenditures prices up 3.4% from a year earlier and the core measure at 3.0%. Oil has swung violently through the year as the Iran conflict disrupted Gulf shipping: West Texas Intermediate rose from $71.13 on 2 March to $114.58 on 7 April, 24/7 Wall St noted, and was back near $96 at the end of September. And the Federal Reserve raised its policy rate by a quarter point on 16 September to 3.75%–4%, its first hike in three years.
Supply and demand in the bond market itself also played a part. A seven-year note auction in the final week of September drew the weakest bid-to-cover ratio in a year, and the Treasury scheduled a buyback of up to $6 billion of 10- to 20-year securities on 1 October. The real, inflation-adjusted 10-year yield climbed from 2.43% on 8 September to 2.93% on 30 September, indicating that the selloff was not simply a repricing of inflation expectations.
The jump has already filtered through to borrowing costs. The Mortgage Bankers Association's 30-year fixed rate stood at 7.3% as of 30 September, its highest since November 2023, while existing home sales ran at an annualised 3.98 million in August. Equity volatility remained subdued by contrast, with the VIX at about 16 on 29 September.
The rally in yields stalled when the labour market data turned. The 2 October employment report showed payrolls up just 29,000 in September against expectations near 90,000, with unemployment rising to 4.2%. The 10-year yield fell from 5.23% to 5.17% in the minutes after the release and the two-year from 4.78% to 4.72%, according to investingLive, as futures-implied odds of an October rate increase dropped from about 28% to 15%.
By 5 October the 10-year had drifted back to around 5.30%, ROIC reported, with futures assigning roughly a 77%–80% probability to a hold at the Fed's late-October meeting while still pricing substantial odds of a December move. The pattern suggests investors are weighing a slowing jobs market against an inflation backdrop that has not yet given the central bank room to stop.
Views on where the ceiling lies diverge sharply. Karen Ward of J.P. Morgan Asset Management has argued the 10-year is "unlikely to rise much above 5%", 24/7 Wall St reported, while ING has said yields could reach 6%. A Bloomberg survey of 173 bond specialists cited in the same report found just over half expecting the 30-year yield to exceed 6% in 2026.
The calendar offers several catalysts. The Federal Open Market Committee meets on 27 and 28 October, the September consumer price index and third-quarter GDP arrive before then, and the Treasury's quarterly refunding announcement in early November will set the pace of coupon issuance into the new year.
