10-Year Treasury Yield Breaks Above 5% for First Time Since 2007 on Hot Growth Data and Oil Spike

The 10-year Treasury yield crossed 5% Wednesday morning and kept climbing, hitting as high as 5.104%, according to CNBC. That's the highest level since 2007, before the financial crisis. Breitbart put the move at 5.079%, up 0.12 percentage points on the day. Every maturity on the curve moved with it: the 2-year jumped to as high as 4.914% per CNBC, the 5-year spiked roughly 15 basis points to about 4.96-4.99% according to Crypto Briefing, and the 30-year touched 5.389%.

Two things drove it. First, the economy is running hot. S&P Global's flash composite PMI hit 58.4 in September, the strongest since July 2021, Breitbart reported. CNBC broke it down further: services jumped to 58.7, the best reading in nearly five years, and manufacturing hit 56.7, a four-year high. "US business continues to boom," S&P Global Market Intelligence chief business economist Chris Williamson said, calling it the sharpest growth surge since early 2015 outside the COVID reopening. He also flagged that input costs jumped at the steepest rate in four years, driven by fuel and transport.

Second, the Fed isn't backing off. Governor Michael Barr said Wednesday that further tightening is "likely necessary" because "risks to achieving our inflation target have increased." Markets took the hint. Odds of another quarter-point hike in October jumped to 73% from 55% a day earlier, according to CME Group's FedWatch tool cited by CNBC. A month ago those odds were under 10%.

Oil, Iran, and a Diesel Fight That Isn't Helping

Oil prices added their own pressure. NBC News reported Brent crude climbed above $101 a barrel and U.S. crude neared $92, while Yahoo Finance put Brent closer to $98 in the same session, with WTI also near $92. Rising oil feeds directly into inflation expectations, which pushes yields higher.

The oil move came after a rough 24 hours on the Iran front. President Trump said Tuesday that U.S. and Iranian officials had spent hours talking at the United Nations, and for a moment that optimism pushed oil prices down. But special envoy Steve Witkoff described the talks as "lengthy" with more work to do, and NBC reported that Wednesday morning the U.K. maritime trade monitoring agency said a cargo vessel had been hit by an unknown projectile in the Strait of Hormuz, the chokepoint that has been near a standstill for months amid heightened tensions with Iran.

Trump also rattled energy markets Tuesday by telling reporters at the UN he supports banning U.S. diesel exports: "I've said 'Let's not send out the diesel.' I've called for it within my people." That didn't sit well with his own Energy Secretary. Chris Wright said Wednesday, according to Reuters, that "the blunt tool of banning diesel exports definitely doesn't work." The American Petroleum Institute went further, warning that pulling U.S. diesel off the global market "could instead result in reduced refinery runs, global economic damage and even higher U.S. prices." Benchmark diesel futures still jumped as much as 7% in European trading on Trump's remarks, per NBC.

Restricting exports to lower domestic prices sounds simple, but the API and Trump's own energy secretary are both on record saying it would likely backfire by shrinking refining activity and pushing prices up, not down. No policy has been announced or enacted. It remains a stated preference from the president, not a rule in effect.

Markets React, Treasury Won't Fight It

Stocks sold off as yields spiked. The Dow fell 341.64 points, or 0.66%, to 51,522.05, according to Yahoo Finance. The S&P 500 dropped as much as 0.82% and the Nasdaq fell around 1.28% to 1%, snapping back from back-to-back record highs earlier in the week.

Washington isn't stepping in to cushion the move. The Treasury Department kept a $6 billion ceiling on buybacks of long-term Treasury bonds despite the jump in rates, a report carried by Yahoo Finance and Investor's Business Daily noted, signaling no appetite to fight market pressure with intervention.

All of this is unfolding as Trump is expected to greet Chinese President Xi Jinping at Joint Base Andrews for Xi's first visit to Washington in 11 years, according to Yahoo Finance. Trade, tensions with Iran, rare earths, and AI policy are on the agenda, with a dinner Thursday expected to bring in Nvidia's Jensen Huang, OpenAI's Sam Altman, and Google's Sundar Pichai. No major breakthroughs are expected, per Yahoo.

The open questions: whether the Fed actually delivers the rate hike markets are pricing in at 73% odds for October, whether Trump follows through on a diesel export ban his own energy secretary opposes, and whether a 5% 10-year yield, last seen the year before the 2008 financial crisis, starts feeding through to mortgage rates and corporate borrowing costs in the weeks ahead.