[Edaily Reporter KIM YOON JI ] Although the yield on the 10-year U.S. Treasury note has surpassed 5%, the U.S. economy shows no signs of cooling down. With strong growth and inflationary pressures persisting, expectations for further interest rate hikes by the Federal Reserve (Fed) are growing, which in turn is fueling Treasury sales and driving up yields.
According to the Financial Times (FT) on the 25th (local time), the benchmark U.S. 10-year Treasury yield soared past 5.2% this week, reaching its highest level since 2007. The 30-year Treasury yield also surpassed 5.5% for the first time since 2004.

Analysts say that stronger-than-expected economic indicators, combined with the burden of record-high national debt and soaring oil prices, are fueling the sell-off in Treasury bonds. With the U.S. economy showing little sign of cooling despite high Treasury yields, the likelihood of further monetary tightening by the Federal Reserve is increasing, which in turn is leading to more Treasury bond sales and upward pressure on yields.
Mike Riedel, a fund manager at Fidelity International, said, “There has been much debate over how high Treasury yields need to rise to begin cooling an overheated economy,” adding, “Recent economic indicators have provided the answer. We are still nowhere near that level.”
Driven by the U.S. economy’s strong resilience and rising energy prices triggered by the war in Iran, the Fed raised its benchmark interest rate by 0.25 percentage points this month to 3.75–4.00%, marking the first increase since 2023. With the Fed’s hawkish stance coupled with robust economic activity and inflation data, the market is increasingly pricing in the possibility of further rate hikes.
Expectations for further rate hikes grew even stronger after the Standard & Poor’s (S&P) Global Purchasing Managers’ Index (PMI), released on the 23rd of this month, defied Wall Street expectations and showed that business activity in September expanded at the fastest pace in five years. This has reinforced the perception that the U.S. economy remains overheated, driven by massive investments in artificial intelligence (AI) and a strong asset market. The Atlanta Federal Reserve’s GDPNow forecast projects U.S. third-quarter growth at an annualized rate of 5.1%.
With no clear signs of an economic slowdown despite high interest rates, market expectations for interest rates are rising rapidly. The futures market is currently pricing in the possibility that the Fed will raise rates by an additional 0.9 percentage points by this time next year. As recently as early September, the market had expected interest rate hikes over the next year to total only about 0.6 percentage points, including this latest increase.
Seb Barker, chief market strategist at hedge fund manager Marshall Wace, said, “The market is once again pricing in a Fed rate path that remains at higher levels for longer,” adding, “While much attention is focused on the sharp rise in long-term yields, what has actually changed significantly is the market’s pricing of Fed rates.”
The U.S. dollar is also strengthening on expectations of further rate hikes. The dollar has risen about 1.5% against major currencies this month.
The problem is that both growth and inflation are simultaneously pushing up Treasury yields. We are seeing the simultaneous emergence of so-called “good inflation”—driven by rising demand stemming from strong domestic consumption and investment—and “bad inflation” resulting from rising energy prices caused by the protracted war in Iran. With U.S. national debt exceeding $40 trillion, these inflationary pressures are driving bond investors to demand higher yields.
The burden of high interest rates is being felt first by households. The rate on 30-year fixed-rate mortgages in the U.S. hit 7% this week for the first time in nearly two years.
Consequently, with the 10-year Treasury yield already well above 5%, investor attention is focused on how high it must rise before it begins to have a significant impact on the economy and the stock market.
Robert Tip, Head of Global Fixed Income at PGIM Credit, assessed that “so far, the U.S. economy has shown relative resilience to rising interest rates.” He noted, “This economic expansion is different from past ones in that there is an abundance of assets and cash,” adding, “High interest rates are not posing as great a threat as we have come to expect.”