US Treasury yields are rising as bond markets price a renewed inflation threat, while Treasury auctions continue to function in an orderly way. The benchmark 10-year Treasury yield reached 4.8568% earlier in the session, its highest level since November 2023. The 30-year yield touched 5.3%, a level not seen since 2006.
Nominal Treasury yields increased across maturities from July 8 to September 8, 2026. The move differs from the spring, when yields rose without a corresponding increase in market pricing of inflation. Over the past two months, inflation expectations have risen and contributed to the advance in bond yields.
The change has also altered the shape of the yield curve. Front-end Treasury yields rose slightly more than 30-year yields, flattening the curve. Inflation expectations accounted for most of the rise at shorter maturities. At longer maturities, higher inflation expectations and higher real yields both added to the increase.
Recent US inflation figures have reinforced concern that price pressures remain above the Federal Reserve's target. The Consumer Price Index rose 3.4% year-over-year in August, unchanged from July. Headline CPI increased 0.4% month-over-month.
Core CPI, which excludes some volatile items, rose 0.3% month-over-month in August, above the market forecast of 0.2%. Its year-over-year rate slowed from 2.5% to 2.4%. Gasoline prices increased 3.9% in August and accounted for more than a third of the monthly increase in overall CPI.
The Producer Price Index also pointed to continuing pressure. August PPI rose 0.4% month-over-month and 5.4% year-over-year. Inflation has remained above the Federal Reserve's 2% annual target for over five years.
The Federal Reserve raised its benchmark interest rate to the 3.75% to 4% range at its September Federal Open Market Committee meeting. It was the central bank's first rate increase since July 2023. Projections from Fed participants indicate that at least one further rise is likely, with an additional increase expected by year-end and another possible later this year or sometime in 2027.
Futures markets have reflected the shift in expectations, pricing a substantial chance of near-term rate increases. Market participants still face uncertainty over the conditions that could lead the Fed to pause or reverse its tightening. They have also pointed to uncertainty around the central bank's response to competing inflation and productivity forces.
Higher yields reflect more than expectations for interest rates. Investors have cited stronger economic growth, continued elevated government borrowing, inflation uncertainty, funding for artificial intelligence capital expenditure, and uncertainty over the monetary and fiscal reaction function of the Fed and Treasury. Global economic surprises have been consistently positive over the past few months.
Artificial intelligence-related investment is increasing near-term demand for chips, energy and other resources, potentially adding to inflationary pressures. The eventual balance between those pressures and any productivity gains remains unclear. Geopolitical tensions, tight labour markets and supply-chain disruptions have also contributed to an environment of elevated inflation risk.
Fiscal pressures add another element to the market's assessment. US debt reached a $40 trillion milestone, while the fiscal position worsened in 2026. A $39 billion Treasury auction showed strong demand, suggesting that the higher yields have not disrupted the government's ability to sell debt.
The immediate risk for bond investors is that inflation expectations remain elevated while economic data continue to exceed earlier assumptions. Governments and corporations are increasingly competing for a finite pool of savings. That could leave elevated interest rates and rate volatility as a continuing feature of the investment landscape, even though the scale and duration of the current inflation pressure remain uncertain.
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