The US 10-year Treasury yield on Monday briefly surged past 5% for the first time since 2023 — goosed by rising diesel prices in a rally that could boost borrowing costs for mortgages and auto loans.
By approximately 3:20 p.m. ET, the US 10-year Treasury yield had dipped back down to 4.967%. The 20-year Treasury yield was also elevated at 5.376%.
The Dow Jones Industrial Average fell 152 points, or 0.3%, while the S&P 500 and Nasdaq slumped 0.5% each.
Concerns around rising energy prices amid the war in Iran and fears that the Fed could hike interest rates this week have fueled a weekslong bond sell-off. As traders dumped bonds, Treasury yields – the annual interest investors are paid for holding government debt – climbed higher.
And on Monday, diesel prices hit a record high of $6.23 a gallon, according to AAA, as the Middle East conflict showed no signs of slowing.
Economists have warned that higher diesel prices could bleed through to the rest of the economy and worsen inflation, as food, apparel and other everyday goods are often transported via heavy trucks that run on the pricey fuel.
Nic Puckrin, cross-asset analyst and founder of Coin Bureau, said inflation risks from the Strait of Hormuz crisis can erode the value of bonds, which is why investors are demanding higher yields.
“The 10-year Treasury yield topping 5%, even if briefly, is more consequential for US households than what the Fed does on Wednesday,” he told The Post Monday.
“That’s the rate that sets your mortgage rate, which is why they are getting close to 7%. If the 10-year yield pushes higher, 7% mortgages are in the cards.”
Treasury Secretary Scott Bessent has tried to assuage traders, announcing plans to buy back up to $6 billion of government debt, triple the normal amount – but investors are worried it won’t be enough as long as the war lasts and continues to fuel inflation.
Treasury yields are hovering around levels rarely seen since 2007, threatening to send mortgage rates even higher and lock more buyers out of an already squeezed market.
The US housing market has been essentially frozen for four years as interest rates remain stubbornly high, and homeowners who snagged low rates are reluctant to move.
It’s a vicious cycle, as higher interest rates can also dissuade developers from building more properties, keeping supply low and hurting the rental market, as well.
As of last Friday, the 30-year fixed mortgage rate was 6.76%, according to Freddie Mac.
Auto loans are closely tied to Treasury yields and could hit car shoppers who are already struggling with elevated prices at dealerships and higher costs at the gas pumps.
Higher yields are also a threat to the stock market, since they offer a safer alternative to stocks – potentially swaying traders to sell their stakes and lower stock prices.
Treasury yields also influence the corporate bonds that businesses have been using to borrow funds and spend big on artificial intelligence, which has driven much of the stock market gains so far this year.
In the meantime, the Federal Reserve is largely expected to hike interest rates by a quarter point at their Sept. 16 meeting in an attempt to counter inflation – but as Puckrin noted, this isn’t a long-term solution for the bond sell-off.
“The problem is that even if the Fed does hike on Wednesday, it’s not in the central bank’s power to fix the underlying problem. The widely expected hike won’t reopen Hormuz or resolve the Middle East situation,” he said.
“Until then, consumers will face the double-whammy of higher prices at the pump and at the supermarket, combined with higher mortgages and borrowing rates. And as the US heads into winter, households in the Northeast that rely on heating oil could see their heating bills jump too. It could be a subdued festive season.”