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Rising Treasury yields are sending a warning signal: Investors are worried that higher inflation could keep the Federal Reserve from cutting interest rates anytime soon.
Treasurys, or bonds issued by the U.S. government, are considered among the safest investments in the world. Their yields move with investor demand and expectations for inflation, economic growth and Fed policy.
That makes the bond market a closely watched gauge of investor sentiment, and something of an early warning system for a range of risks, such as fiscal concerns and even recessions.
Inflation often leads the Fed to raise interest rates to stabilize prices. That lowers the price of existing Treasury bonds because they become less attractive to investors compared with newly issued bonds offering higher yields.
In April, inflation rose at its fastest pace in almost three years, driven by surging oil and gas prices. As a result, financial markets see little chance that the Fed will move to cut interest rates in 2026. In fact, the probability of a rate hike this year has increased, according to CME FedWatch, which predicts changes to the Fed’s benchmark rate based on futures prices.
As inflation flares, investors have been selling Treasurys in recent weeks, pushing prices lower and yields higher. The yield on the 30-year Treasury reached 5.19% on Tuesday — its highest point since July 2007. The 10-year Treasury yield jumped to 4.69%, its highest point since January 2025.
Higher Treasury yields also matter because they influence mortgage rates, corporate borrowing and the relative appeal of stocks.
“As yields rise, investors have alternatives to equities that did not exist to the same degree during the ultra-low-rate era. That naturally places pressure on highly valued sectors,” said Nigel Green, CEO of investment advisory firm deVere Group, in an email.
Treasurys and mortgages
High Treasury yields could also trickle through the economy in other ways. Because the 10-year Treasury influences mortgage rates, borrowing costs could increase for homebuyers. The average rate on a 30-year mortgage stood at 6.36% on Wednesday, up from 5.98% at the end of February, according to Freddie Mac.
On Wednesday, the bond selloff took a breather, offering a measure of relief after the spike in yields rattled investors. The yield on the 10-year Treasury fell to 4.60% from 4.69% on Tuesday, a notable move for the bond market, which measures things in hundredths of a percentage point.
To be sure, the bond selloff may simply reflect investor concerns about near-term inflation rather than deeper fears of stagflation — a combination of slow economic growth and high inflation — according to investment advisory firm Yardeni Research.
“We expect that the economy and corporate earnings will remain resilient,” the firm said. “Our current assessment is that the bull market isn’t at risk of being derailed by the selloff in the bond market, which presents a very good opportunity to buy both bonds and stocks.”
They added, “The economy can handle the backup in bond yields, in our opinion … We will start to worry if the 10-year yield significantly breaches 5.00%.”
