Economy 5 min read By Alice Ashford
US 10-Year Treasury Yield Tops 5% for First Time Since 2007 as Stagflation Fears Return
The benchmark US 10-year Treasury yield has crossed 5% for the first time since 2007, driven by a combination of sticky inflation, weak growth, tariff shocks and an energy crisis linked to the Iran war. Economists and investors are debating whether the world's largest economy is heading for a 1970s-style stagflation, though current inflation and unemployment levels remain far below that era.
The yield on the benchmark US 10-year Treasury note has climbed above 5% for the first time since 2007, capping a six-year surge from pandemic-era lows near 0.5% and reviving fears that the world's largest economy is entering a stagflationary period of high inflation and weak growth.
The move matters well beyond Washington. The 10-year yield is the return investors demand to hold US government debt and serves as a global benchmark for borrowing costs, shaping mortgage rates, corporate bond pricing and equity valuations from London to Tokyo. Its rise to 5% marks the end of an era of ultra-cheap money that began when the Federal Reserve cut its policy rate to near zero in 2020 and bought large quantities of Treasury and mortgage securities.
At the time, the yield fell to 0.52%, the lowest level on record, as investors rushed into the safety of government debt. That world of negligible bond income unravelled once economies reopened. Trillions of dollars in fiscal support left households with accumulated savings, spending shifted sharply from services to goods, and factories, ports and transport networks struggled to keep pace with rebounding demand.
Consumer price inflation began climbing quickly in 2021. Fed officials initially described the increase as temporary, pointing to supply constraints and the reopening economy. By late 2021 the language had changed, and the central bank began raising rates in March 2022. CPI inflation reached 9.1% in June 2022, the highest 12-month increase since 1981, with energy prices up 41.6% year on year. The Fed lifted its target range to 5.50% by July 2023, pushing the 10-year yield above 4% in 2022 and briefly through 5% intraday in October 2023.
The yield then retreated as investors bet on falling inflation and rate cuts. That reprieve proved short-lived. After Donald Trump won the 2024 presidential election, the 10-year yield jumped as markets anticipated larger deficits, higher tariffs and potentially more inflation, reaching 4.7%. Sweeping tariffs announced in 2025 added to the pressure, with the yield touching 4.79% at one point and raising 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 above $100 a barrel, threatening growth while simultaneously raising inflation. By August, US CPI inflation was running at 3.4% annually, well above the Fed's 2% target, and petrol prices rose 3.9% in that month alone, accounting for more than a third of the overall increase in the index.
That combination has drawn comparisons with the 1970s, when the oil crisis produced a toxic mix of stagnant growth and soaring prices. «We're certainly in a stagflationary period,» the investor Ray Dalio told CNBC in April. «How that transpires has a lot of parts to it, but we're certainly in that.»
The parallels should not be overstated. Inflation peaked near 14.8% in March 1980, more than four times today's 3.4% rate, while unemployment topped 9% during the mid-decade oil shock, against roughly 4.1% now. The policy response then was proportionally brutal: Fed chair Paul Volcker pushed the federal funds rate to 20% by 1981 to break inflation, triggering a recession that drove unemployment above 10%.
Even so, the direction of travel is uncomfortable for policymakers. The Fed faces a lose-lose dilemma: high inflation argues for higher interest rates, while weak growth argues for the opposite. For British businesses and investors, the consequences are already visible in higher global borrowing costs, currency volatility and pressure on equity markets, which fell 19% in one recent stretch, their worst run since 2008. Whether the 5% yield proves a peak or a staging post will depend on whether the energy shock fades and inflation returns to target, or whether the stagflationary mix becomes entrenched.
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