Government bond selloff deepens as the 10-year Treasury pushes past 5 percent

The selloff in US and European government bonds deepened after President Trump rejected Iran’s truce proposal¹. The US 10-year Treasury yield returned to levels not seen since 2007⁴, with one account putting the move above 5.05 percent and calling it a 19-year high¹⁵. A separate report described bond yields as reaching a 22-year high⁷, a discrepancy in framing that the sources do not resolve.

Credit followed. High-yield bonds are on course for their worst month since 2022, when inflation was soaring, and popular bond exchange-traded funds have been pummelled². In the US, both junk bonds and their investment-grade peers were heavily affected³. Bonds slumped to a monthly loss while equities wobbled⁹.

The move also showed up in currencies, with the dollar rallying as global capital chased risk-free yield and the dollar index tested multi-year highs⁶.

Why it matters to investors

Federal Reserve governor Christopher Waller said the premium for US government bonds as a safe asset has disappeared, with buyers shifting toward hedge funds¹⁰. That is a statement about market structure, not just price: if Treasuries are held increasingly by leveraged buyers, the path of any future selloff changes.

Higher risk-free rates also reprice the capital spending wave. Man Group argued that yields around 5.5 percent risk cracking both artificial intelligence capital expenditure and the US consumer¹⁴. Rockefeller’s Ruchir Sharma warned that an AI bubble would burst after the 10-year yield hit 5 percent¹².

Sovereign yields set the floor under every other discount rate, so a 10-year Treasury above 5 percent reprices equity valuations, mortgage costs and the funding of leveraged credit at the same time^8,15. The junk bond move is the visible transmission: when the risk-free rate rises and spreads widen together, the weakest borrowers refinance at materially worse terms or not at all^2,3.

What to watch

Policy expectations are the proximate driver. New York Fed President John Williams called another increase this year a reasonable way to think about it, and one estimate put October hike odds at roughly 64 percent¹¹. Governor Michael Barr said further rate increases are likely to be needed⁸.

Positioning is not one-sided. Bob Michele, global head of fixed income at JPMorgan Asset Management, said the entire yield curve is oversold¹³. Treasuries sank as US-Iran talks failed to ease inflation fears⁵, so any credible de-escalation is the clearest route to a reversal.