10-Year Treasury Yield Nears 5%, Unnerving Markets

A sharp selloff in the U.S. Treasury market has sent shockwaves through global financial markets just days into the new year. The yield on the benchmark 10-year Treasury note has surged, approaching the 5% mark—a level rarely seen since the global financial crisis.

“Markets are rattled by the 5% level on the 10-year yield because it marks the outer boundary of what an entire generation has experienced with prevailing interest rates over the past 20 years,” said Nicholas Colas, co-founder of DataTrek Research. “The last time we crossed this threshold was mid-2007, and we all remember what followed.”

Historical Significance

The 10-year yield last broke above 5% in June 2007, just months before the Great Recession began. While 2025 differs significantly from 2007—with a more resilient banking system but much higher U.S. federal debt—psychologically important levels like the 10-year yield often dominate market narratives, Colas noted.

Recent Market Moves

Robust U.S. economic data last week led traders to reconsider the timing of Federal Reserve rate cuts, pushing expectations for monetary easing further into the year. This shift triggered a selloff in equities, with the S&P 500 erasing much of its postelection rally and the Dow Jones Industrial Average enduring its worst start to a year since 2016.

The 10-year yield previously flirted with 5% in October 2023, briefly reaching 4.987% before retreating. That episode also saw U.S. stocks tumble, reflecting investor unease over rising yields.

Market Context

Aside from a brief spike in 2023, the 10-year yield has remained well below 5% for much of the last two decades, thanks to sluggish post-recession economic growth and significant Federal Reserve bond-buying programs. Colas noted that while the economy may withstand a 5% yield, equity markets could face turbulence as they adjust.

Current Market Snapshot

As of Monday, U.S. stocks posted mixed results. The Nasdaq Composite fell 0.4%, while the S&P 500 rose 0.2%, and the Dow gained 0.9%. Meanwhile, the 10-year Treasury yield inched up to 4.802%, and the 30-year yield climbed to 4.986%, according to FactSet.

Investors now await critical inflation data set to be released this week, which could shape expectations for Federal Reserve policy and influence market direction.