Invest1 publisher3 min readPublished
10-year Treasury yield hits highest since 2007 as rising business input costs fuel Fed rate-hike bets
Bond traders pushed the 10-year Treasury yield to 5.15% on Thursday, its highest since 2007, as oil returned to $105 a barrel. Fuel costs from the Iran war are now reaching borrowers through bets on another Fed rate hike.
The Investor · Invest desk
What happened
- The 30-year Treasury yield reached 5.446% on Thursday, a 22-year high, and the 10-year touched 5.15%, its highest since 2007, after its biggest one-day rise since April 2025.
- Oil jumped overnight after a mediated US dialogue with Iran at the UN General Assembly showed no tangible progress toward ending the seven-month war.
- Diesel averaged a record $4.51 a gallon nationally, 73% above its price when the war began.
- A Wednesday S&P Global survey showed company input costs rising at the fastest pace in four years, led by fuel and transport, and traders added to bets on Fed hikes.
- The Treasury planned to buy back up to $6 billion of 20- to 30-year bonds on Thursday in an effort to keep long-term yields low.
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Why it matters
- cost A fuel budget built on late-February prices now misses about 42 cents of every dollar a diesel fleet spends, and freight-heavy operators take the largest share of that shortfall.
- decision Borrowers with debt coming due must choose between locking in long-term money near a 22-year high and waiting for a ceasefire or Treasury buybacks to bring long yields down.
- exposure If the Fed hikes by year-end as Williams suggested it may, floating-rate borrowers pay for the war's fuel shock twice: once at the pump and again in interest expense.
Fuel is the part of an operating budget that has already been repriced in cash. Diesel is at $4.51 a gallon, 73% above its prewar level, so it started near $2.61, and a diesel buyer now pays about $1.90 more per gallon than in late February [5][1]. Regular gasoline is at $4.48 and up 50%. It started near $2.99 and has added about $1.49 [6][2]. S&P Global's September survey found the same cost showing up in company books, reporting that "firms' input costs have meanwhile jumped in September at the steepest rate for four years, with fuel and transport costs spiking higher." [9]
That cost reached the bond market through the Fed. According to NBC News, the survey was one major driver of this week's rise in yields because it pushed investors and traders to add to their bets on rate hikes [9][10]. John Williams, president of the New York Fed, said on Thursday that it was "likely that another rate hike may be appropriate by the end of the year." [11] Bank of America's rates analysts described US data as "still fairly solid," citing "a 4%-type unemployment rate and 2%-ish growth." [18]
In my view the evidence supports the claim that the war is now setting US borrowing costs, through fuel and the Fed's response to it. The same reporting also makes the case against. Japan's 10-year yield hit its highest since 1996 and Germany's its highest since 2009 [12]. Part of the pressure on Treasuries also runs through Japan. The Treasury intervened to support the yen, hoping to ease pressure on the Japanese government to sell US bonds, and by Thursday the yen had slipped back to its early-September level against the dollar [13].
The Treasury has responded by buying back long bonds to hold their yields down [14]. After its first buyback this month, yields rose, the opposite of what the administration intended [15]. "I am the house now," Treasury Secretary Scott Bessent said on Sept. 8, "and you can bet against me if you want." [16] Paul Donovan, chief economist at UBS Global Wealth Management, wrote: "US Treasury Secretary 'House' Bessent seems to be demonstrating the house does not always win." [17]
At Thursday's highs the 30-year yielded about 30 basis points more than the 10-year, 5.446% against 5.15%. That spread is what the Treasury market charged for the extra 20 years of duration [3]. The report does not include corporate bond yields or loan rates, so any pass-through to company borrowing has to be inferred from the benchmark.
A specific result would prove the thesis wrong. Suppose talks with Iran end the war and yields fall with oil. Then the war was setting rates, and debt or projects priced at this week's levels will look expensive [4]. Suppose instead that oil falls and the 10-year stays above 5%. Then the war was one input among several, and a budget should treat today's borrowing cost as its base case whatever happens to diesel.
What to watch
- How long-dated yields trade after Thursday's buyback of 20- to 30-year bonds, the second test of whether Treasury purchases can hold the long end down.
- Whether the yen weakens past its early-September level, a gauge of the pressure on Japan's government to sell Treasuries.
- The Fed's rate decision before year-end, after Williams said another hike may be appropriate.