Back to 2002

This fall, long-term interest rates climbed to levels the bond market hadn't seen in more than twenty years. Here's how they got there.

On October 5, the 10-year Treasury yield closed at 5.31%. [1] That was above its June 2007 peak of 5.26%, [2] and coverage described it as the highest level since 2002. [3] [4]

The move was fast. The 10-year started the year at 4.19% and began September at 4.79%. It then added more than half a percentage point in five weeks. [1] In August 2020 the same bond yielded 0.52%. [2] The rate the U.S. government pays to borrow for ten years is now roughly ten times what it was six years ago.

The Fed changed direction. In December, the median Federal Reserve official projected one rate cut in 2026. [5] On September 16, the Fed raised rates instead, by a quarter point to a range of 3.75% to 4%. The vote was unanimous, the statement said "inflation remains elevated," [6] and it was the Fed's first increase since 2023. [7] The inflation data that followed didn't change the picture: consumer prices rose 3.7% over the twelve months through September, with gasoline up 34% and fuel oil up 74%. [8]

The Fed sets short-term rates directly. The 10-year is set by investors, and this time they had several reasons to ask for more.

It wasn't only the Fed. In an October analysis, Forbes described "five forces" hitting the bond market at once. [3] Three stand out:

More borrowing. The Congressional Budget Office estimated the federal deficit for fiscal 2026, which ended September 30, at $2.0 trillion, more than $200 billion above the year before. [9]

More competition for buyers. Companies building artificial intelligence infrastructure have been borrowing heavily too. Goldman Sachs estimated AI-related bond issuance at $489 billion so far this year, supply that Forbes noted competes with Treasuries for buyers. [3]

A global move. On September 1, Britain's 30-year borrowing cost touched 5.9%, its first time there since the late 1990s. Japan's 10-year yield reached 3%, its highest since 1996. [10] In early October, worries about France's finances pushed European borrowing costs higher still. [4]

The detail worth noticing. The Treasury also publishes yields on its inflation-protected bonds, which show the return investors demand after inflation. On January 2, the 10-year inflation-protected yield was 1.94%. On October 5 it was 2.95%. [11] So of the 1.12-point rise in the regular 10-year yield over that stretch, about 1.01 points showed up in the after-inflation yield. The gap between the two, which reflects the market's inflation expectations, moved only about a tenth of a point. [1] [11] Higher inflation was part of the story, but most of the increase was investors asking for a higher real return to lend money for ten years.

Where it shows up. The clearest place is borrowing. The average 30-year fixed mortgage rate was 7.40% in mid-October, compared with 6.27% a year earlier. [12] The other is existing bonds. When rates rise, older bonds paying lower rates generally have to be sold at a discount to compete with new ones. [13]

None of this says where rates go next. The bond market reprices every trading day, and the Fed meets again before year-end. What it does say is that a 10-year Treasury paying more than 5%, something that would have sounded like a relic for most of the past twenty years, came back this fall, and it came back for more than one reason.

Sources

1. U.S. Department of the Treasury, "Daily Treasury Par Yield Curve Rates," January, September and October 2026. https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202610

2. Federal Reserve Bank of St. Louis (FRED), "Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity" (DGS10), annual history for 2007 and 2020, via ConvexTrade. https://fred.stlouisfed.org/series/DGS10 ; https://convextrade.com/metrics/dgs10/history/2007 ; https://convextrade.com/metrics/dgs10/history/2020

3. Forbes (Garth Friesen), "Why The 10-Year Treasury Yield Just Hit A 24-Year High," October 7, 2026. https://www.forbes.com/sites/garthfriesen/2026/10/07/why-the-10-year-treasury-yield-just-hit-a-24-year-high/

4. Bloomberg Government, "US Benchmark 10-Year Yield Briefly Hits Highest Since 2002," October 1, 2026. https://news.bgov.com/insurance/treasury-10-year-yield-hits-highest-since-2002-on-rate-outlook

5. Advisor Perspectives, "Fed Cuts Rates for the Third Time This Year," December 13, 2025 (December 2025 Summary of Economic Projections). https://www.advisorperspectives.com/commentaries/2025/12/13/fed-cuts-rates-third-time-this-year

6. Board of Governors of the Federal Reserve System, FOMC statement, September 16, 2026. https://federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm

7. Central Banking, "Federal Reserve delivers first rate hike since 2023," September 2026. https://www.centralbanking.com/central-banks/monetary-policy/7976918/federal-reserve-delivers-first-rate-hike-since-2023

8. U.S. Bureau of Labor Statistics, "Consumer Price Index — September 2026," released October 14, 2026. https://www.bls.gov/news.release/cpi.nr0.htm

9. Committee for a Responsible Federal Budget, "CBO Estimates $2.0 Trillion Deficit for Fiscal Year 2026," October 8, 2026 (on CBO's Monthly Budget Review). https://www.crfb.org/press-releases/cbo-estimates-20-trillion-deficit-fiscal-year-2026

10. The Irish Times, "Bond sell-off accelerates globally as investors bet on interest rate hikes," September 1, 2026. https://www.irishtimes.com/business/2026/09/01/bond-sell-off-accelerates-globally-as-investors-bet-on-interest-rate-hikes/

11. U.S. Department of the Treasury, "Daily Treasury Par Real Yield Curve Rates," January and October 2026. https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_real_yield_curve&field_tdr_date_value_month=202610

12. Freddie Mac, Primary Mortgage Market Survey, October 15, 2026. https://www.freddiemac.com/pmms

13. U.S. Securities and Exchange Commission, Investor.gov, "Bonds" (interest rate risk). https://www.investor.gov/introduction-investing/investing-basics/investment-products/bonds-or-fixed-income-products/bonds