Bond market bust: A key rate just blew through another decades-old record

By David Goldman, CNN

(CNN) — The bond market is in an unrelenting sell-off. In the latest dubious milestone for US Treasuries, the yield on the 10-year benchmark note just hit its highest level since the dot-com bust.

American government bonds remain the world’s most important financial market, widely considered the safest place for investors to park their money. When times are tough, traders flee to the security of the US bond market.

That’s not what’s happening here. Just the opposite.

The reasons for the bond bust are numerous and, in some ways, counterintuitive: The US economy is strong – probably too strong, supported by massive AI spending. Inflation is too high, with prices pushed up by rising fuel costs. The Federal Reserve will probably try to slow all that down again.

The weak bond market and rising yields are hurting Americans’ borrowing power. Interest rates tied to the bond market, including mortgages and auto loans, continue to surge. The rate on a 30-year home loan topped 7% for the first time since early 2025 last week.

Meanwhile, investors keep heading for the bond market exits, selling off bonds and demanding higher rates at government bond auctions as inflation continues to rise. Higher prices degrade investments over time, and bondholders want to ensure they’re compensated for the effects of higher gas and diesel prices on their investments.

But higher yields haven’t yet attracted enough investors to test the bond market waters again. That’s sending yields ever higher, breaking through barriers we haven’t seen in decades. At 5.34%, the 10-year yield hasn’t been this high since 2002. It had recently hit its highest level since 2007, and 30-year Treasury yields surged to a more-than-two-decade high.

“There is carnage in the bond market,” said Neil Wilson, strategist at investment bank Saxo. “The worry is that US growth is way stronger than expected.”

US government data keeps showing evidence of a hot economy. Maybe an overheating economy.

A stronger-than-expected report on gross domestic product, the broadest measure of US economic activity, was released Wednesday, in addition to an inflation report that showed prices rising well above the Fed’s target. Bondholders are sending yields higher in anticipation that the Fed will continue to raise its target interest rate at its next meeting later this month.

Unemployment is low – the September jobs report on Friday is expected to show the unemployment rate remained at 4.1%, a level economists call “full employment.” Consumer spending remains robust, fueled by a strong stock market. And annual AI infrastructure spending is now measured in the trillions of dollars and is expected to keep growing – even as rates keep rising – over the course of the decade and beyond.

Debt concerns have also weighed on the bond market, as massive government spending from both political parties is putting the country on an unsustainable fiscal path.

The bond market’s problems are hardly isolated to the United States. Debt concerns and resurgent inflation as a result of high oil and fuel prices have sent rates higher all around the world. The 30-year UK government bond just hit 6% Thursday for the first time since 1998.

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