Friday brought the 10-year Treasury yield to 5.23%, a peak unseen since 2007. The move unsettled investors, yet the driver runs beyond mere inflation. Corporate bond issuance, fueled by the AI spending boom, stands behind the rise.
Prices and bond yields move in opposite directions, so when yields rise, prices fall. The 10-year yield has climbed to 5.23% on Friday after trading just below 4.8% earlier this month.
Why the Yield Climbed
Rising prices persist as a major issue. The University of Michigan’s gauge on what consumers expect for the next 12 months moved up to 4.6% in September, a rise from 4% in August. It marks the highest level seen since June.
Thierry Wizman, who works as a global FX and rates strategist for Macquarie Group, argues that the story goes beyond inflation. He told CNBC that the real driver is bond issuance, which he considers the larger force at work.
“I think this year it has more to do with the bond issuance than the inflation story.”
The Debt Issuance Story
A big gap between what the federal government spends and what it takes in is being financed through the issuance of debt. At the same time, companies are turning to heavy borrowing to pay for AI infrastructure.
That combination, Wizman said, has been what increased bond supply enough to put upward pressure on yields.
Who Is Issuing Bonds
Through July, Vanguard estimates that Alphabet, Amazon, Meta Platforms, Microsoft and Oracle together issued roughly $132 billion of debt. This figure marks a sharp increase over the roughly $35 billion annual average that these companies posted between 2020 and 2024.
This year, borrowing by companies across the data-center, semiconductor and utility ecosystem to fund the buildout could push broader AI-related debt issuance toward a range of $300 billion to $570 billion.
What Higher Yields Mean
When borrowing costs rise for companies, higher yields can drag on stocks. At the same time, those same yields make bonds look more appealing to investors chasing income.
The spending plans for hyperscalers and their suppliers will probably keep bond issuance elevated through this year and into next year, Wizman said.
“So these yields could go higher,” he said.
The Fed’s Role
According to the CME FedWatch tool, traders are pricing in a 64% chance of an October rate hike through fed funds futures. The expectation reflects persistent inflation, which has led the market to anticipate further tightening from the Federal Reserve.
Wizman pointed out that the Fed is not tightening aggressively. He described many things as looking pretty normal.
“The thing that’s abnormal is that we’re in the midst of a very strong investment cycle,” he said.
What This Means for Borrowers
When yields go up, the cost of borrowing rises for businesses, which makes funding daily operations and growth more expensive.
For savers, higher yields mean better returns on bonds and cash.
The Bottom Line
On its own, the 10-year yield at 5.23% does not stand out. What makes it worth noting is the surrounding situation: a surge in corporate bond sales, a robust investment cycle, and only modest tightening from the Federal Reserve.
The conditions surrounding the situation are abnormal, according to Wizman, even though the situation itself is not. A new element in the mix is the bond issuance boom, which is now vying with Treasuries for investor dollars.
Key Facts Box
- 10-year Treasury yield: 5.23%, highest since 2007
- Earlier this month: trading just below 4.8%
- Inflation expectations: 4.6% in September, up from 4% in August
- Corporate debt through July: $132 billion from five tech firms
- Broader AI-related issuance: $300 billion to $570 billion possible this year
- Rate hike odds in October: 64% via CME FedWatch
There is genuine momentum behind the rise. Not all of it comes down to inflation. A surge in bond sales is doing much of the work, and that wave continues to grow.
Source material: “The 10-year Treasury yield is at its highest in nearly two decades. How we got here,” CNBC.
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