The benchmark 10-year Treasury yield jumped to 5.23% on Friday, marking its highest level since 2007. The move follows a climb from just below 4.8% earlier in the month, underscoring the inverse relationship between bond yields and prices.
CME Group’s FedWatch tool indicated a 64% probability that the Federal Reserve will raise rates in October. Meanwhile, the University of Michigan’s consumer sentiment index showed year‑ahead inflation expectations rising to 4.6% in September from 4.0% in August, the highest reading since June.
Macquarie Group’s global FX and rates strategist Thierry Wizman said the surge is driven more by the scale of bond issuance than by inflation alone. He noted that the Federal Reserve is not tightening aggressively, but a strong investment cycle is creating abnormal market conditions.
Bond supply has risen sharply as the federal government finances a large deficit and corporations borrow to fund artificial‑intelligence infrastructure. Vanguard estimates that Alphabet, Amazon, Meta Platforms, Microsoft and Oracle issued about $132 billion of debt through July, up sharply from the roughly $35 billion annual average between 2020 and 2024. Broader AI‑related debt issuance could total $300 billion to $570 billion this year.
Higher yields can weigh on equities by raising corporate borrowing costs and making bonds more attractive to income‑seeking investors. Wizman cautioned that, given continued AI‑driven financing, yields could climb further.
