WASHINGTON, September 3 — Interest rates on government bonds are rising again around the world, making borrowing more expensive for consumers and businesses and heightening concerns about whether governments are issuing more debt than financial markets can handle. On Tuesday, the yield on the 10-year U.S. Treasury reached 4.80%, the highest since early 2025, and the 5-year Treasury touched 4.55%, its highest since October 2025. The 10-year yield strongly influences mortgage rates, while the 5-year is a benchmark for auto loans.
Several factors are pushing yields higher, including inflation concerns, annual U.S. government budget deficits that remain higher than pre-pandemic levels, and heavy borrowing by large tech firms to build data centers powering AI. Additionally, fighting in the Middle East has caused oil prices to jump, renewing inflation worries.
Investors typically demand higher yields when inflation is high or expected to worsen. On Tuesday, the European Union’s statistical agency reported that inflation in the 21-nation euro zone jumped to 3.3% in August, the highest in three years, leading investors to expect the European Central Bank to boost its short-term rate when it meets next week. Federal Reserve Chair Kevin Warsh signaled last Friday that the central bank may still have to lift its short-term rate in the coming months if inflation stays stubbornly elevated.
Rising yields have caught the attention of policymakers worldwide, including Treasury Secretary Scott Bessent, who last month announced an unusual intervention in the bond market to restrain rising yields. Robin Brooks, a senior fellow at the Brookings Institute, said Bessent’s moves and Warsh’s promise to corral inflation have likely kept longer-term rates lower than they would otherwise be and betray a rising concern about where yields are headed.
“You should care because this stuff under the surface is really bubbling,” Brooks said. “And you can tell it is because policymakers are starting to get pretty agitated.” However, Bessent downplayed the overall rise in U.S. yields in a conversation Tuesday with Fox Business host Larry Kudlow on the sidelines of the G20 finance ministers’ meeting in Asheville, N.C. “I don’t think we are in any kind of a dire situation,” Bessent said, arguing that other countries’ bonds have seen bigger yield increases.
The article explains that when governments and big companies borrow money, they sell IOUs to investors, promising to repay with a certain interest rate. Long-term IOUs are called bonds, while shorter-term U.S. government IOUs are bills or notes. Investors buy and sell bonds after issuance, and if a bond becomes less attractive, its price drops, increasing the yield for new buyers.
When investors sell bonds or buy fewer, prices fall and yields rise. The yield on the 10-year Treasury is a key indicator watched by markets and policymakers.
