10-Year Treasury Yield Hits 5% for First Time Since 2007

The 10-year Treasury yield crossed 5% this month for the first time since 2007, capping a six-year surge from pandemic-era lows near 0.5% and reviving a question economists have asked through every leg of the climb: is stagflation back?

For years, a 5% yield looked like a relic from another rate era—one where borrowers faced soaring loan costs. Now it has returned, but the backdrop differs from the eve of the Great Recession. The Federal Reserve faces a lose-lose combination of high inflation and weak economic growth, the paradox economists labeled "stagflation" in the 1970s.

"We're certainly in a stagflationary period," famed investor Ray Dalio told CNBC in April. "How that transpires has a lot of parts to it, but we're certainly in that."

The comparison only goes so far. Today's conditions come nowhere near the 1970s crisis. Inflation peaked near 14.8% in March 1980, more than four times today's 3.4% rate. Unemployment topped 9% during the mid-decade oil shock, versus roughly 4.1% now. The Fed's response was proportionally brutal as well: Chair Paul Volcker pushed the federal-funds rate to 20% by 1981 to break inflation's back, triggering a recession that drove unemployment above 10%—a scale of pain far beyond today's range.

How we got here

The 10-year Treasury yield is the return investors receive for holding U.S. government debt. The extraordinary monetary and fiscal response to COVID, the worst inflation in decades, Fed rate increases, federal deficits and Treasury issuance, and the shocks of tariffs, energy prices and Iran all played a role in the reversal.

In 2020, as COVID spread, investors rushed into government debt for safety and the Fed slashed its benchmark rate to near zero while purchasing large amounts of Treasury and mortgage securities. The 10-year yield fell to 0.52% that year, the lowest level on record.

The reopening changed everything. The U.S. government deployed trillions of dollars in fiscal support, households accumulated savings, and customers shifted spending from services to goods—all while factories, ports and transportation networks struggled to keep up with rebounding demand.

The turning point

The Consumer Price Index began climbing quickly in 2021. Federal Reserve officials initially called the increase temporary, citing supply constraints and the reopening economy.

"Inflation at these levels is, of course, a cause for concern," former Fed Chair Jerome Powell said in an August 2021 speech. "But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary."

By September 2021, the Federal Open Market Committee acknowledged inflation was elevated, even while still positing many factors were transitory. The Fed held its federal-funds target at 0% to 0.25%. By December, policymakers changed expectations: the Fed's median projection showed the federal funds rate rising to 4.4% by the end of 2022, 5.4% in 2023 and 4.4% in 2024, against the 0.1% rate at the end of 2021.

Inflation forced the Fed's hand. CPI reached 9.1% in June 2022, the highest 12-month increase since 1981, with the energy index up 41.6% from a year earlier. The Fed began hiking in March 2022 and lifted the federal-funds target range to 5.50% by July 2023.

The 10-year yield climbed from around 1.5% at the end of 2021 to above 4% in 2022 and flirted with 5% in 2023. In October 2023, the yield crossed 5% intraday but did not stay there. It fell as investors anticipated inflation would drop and the Fed would begin cutting rates. Even the S&P 500 dropped 19%, its worst since 2008.

Trump, tariffs and war

Then came the presidential election. After Donald Trump won in 2024, the 10-year yield jumped as investors anticipated his economic agenda would produce larger deficits, higher tariffs and potentially more inflation. The yield rose to 4.7% in 2024, with investors pricing in the possibility that tax cuts and other policies would increase government borrowing—and that tariffs can raise prices.

The tariff shock followed. Trump announced sweeping tariffs in 2025, and investors initially rushed into Treasuries on recession fears. That did not last. The 10-year yield jumped to 4.79% at one point. According to a report from Reuters, the market's movements raised investor concerns about liquidity in the roughly $29 trillion Treasury market.

The latest leg of the selloff is tied to energy. The Iran war has disrupted energy markets and pushed oil prices higher—threatening economic growth while the oil-price shock raises inflation. Reuters reported that Treasury yields reached their highest levels since 2007 in September as oil moved above $100 a barrel and investors worried about inflation. By August, U.S. CPI inflation was running at 3.4% annually, well above the Fed's 2% target. Gas prices rose 3.9% in August alone, accounting for more than one-third of that month's increase in the overall CPI.

The 1970s took years for markets to digest: higher inflation required higher interest rates, while weak growth needed the opposite. With the Fed still holding inflation above target and oil above $100, bond investors now face the same unresolved arithmetic.