Stubborn inflation, rising interest rate expectations, heavy corporate and government debt supply, a strong growth outlook and concerns about the long-term U.S. fiscal trajectory have combined to send yields higher in the past month.
"The budget and the deficit and the overall makeup of our debt continues to grow," said Tom di Galoma, managing director at Mischler Financial.
The 10-year yields only briefly traded above 5% in 2023. If they surpass that peak of 5.021%, it would be the highest level since 2007.
Yields jumped after data on Friday showed U.S. consumer prices accelerated in August, boosting bets that the Fed will hike rates to stem inflation that is already running well above its 2% annual target.
That was "probably the nail in the coffin," said di Galoma.
Surging oil prices have added to concerns that inflation will keep worsening as the Iran war drags on. Oil prices jumped more than 4% on Monday after new strikes on Saudi Arabian energy infrastructure and attacks on ships in the Middle East compounded supply concerns.
A strong jobs picture, with employers adding 162,000 jobs last month, also reinforced the view.
Fed funds futures traders are now pricing in 93% odds of a hike at the conclusion of the Fed's two-day meeting on Wednesday.
Traders will also focus on updated interest rate projections in the Fed's "dot plot," which may show that some policymakers anticipate an additional rate hike this year. The last quarterly projections at the Fed's June meeting showed nine Fed officials expected a rate hike by year-end.
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