US 10-year yield reaches its highest since 2002

What happened

The yield on the 10-year US Treasury note rose to about 5.31% on 7 October, close to its highest level since April 2002. Later that day, the government sold $39bn of new 10-year notes. Demand was solid, which eased fears that investors were losing appetite for US debt, and yields drifted lower.

Our latest October reading is 5.14%, up from 4.13% in February: a rise of about one percentage point.

Bond markets moved further than the Fed

On 16 September the Federal Reserve raised its target range to 3.75–4.00%, its first increase since 2023. That is a rise of 0.25 percentage points. Since February, the 10-year yield has risen four times as much.

The gap shows the formula from our mechanics page at work: a long-term yield reflects the whole expected path of interest rates, plus a term premium. Investors expect rates to stay higher for longer, and they want more compensation for lending for ten years.

What is behind it

• Inflation. US inflation was 3.7% in September. Core inflation was 2.6%, so much of the rise comes from energy.
• Sticky service prices. The prices index in the September ISM services survey rose to 74, a sign that businesses are still facing rising costs.
• Heavy borrowing. Large government deficits and heavy corporate bond sales linked to AI investment mean more debt for investors to absorb.

What to watch

• The Fed’s next decision. As of 7 October, markets saw a 78% chance it would hold rates.
• Upcoming Treasury auctions, a direct test of demand for US debt.