Once again, the bond market is signaling a warning for the economy — although that doesn't necessarily spell catastrophe yet. But without question, if government bond yields continue to rise, lending will become more challenging.
The Treasury Department at the end of Friday, May 15, listed the yield of the 10-year Note as 4.59%. MarketWatch showed trading at 4.596% at 5 PM EST and nearing 4.60%.
That's the biggest weekly jump since President Donald Trump's tariffs in April 2025, according to a report from Bloomberg. Japan's 30-year yield was 4% for the first time since 1999, when they were first introduced. The UK 30-year gilt yields hit a 28-year high.
There are a few major reasons for the spike, at least in the U.S. One is the lack of breakthroughs in the war in Iran coming after the U.S.-Chinese summit, with markets left heavily disappointed. The second, another result of a lack of impact, was a jump in oil prices. Brent crude was up 3.34% to $109.30 per barrel according to Friday data on OilPrice.com, while the WTI (West Texas Intermediate) index spiked 4.20% to $105.40.
Also, it's worth noting that Kevin Warsh's tenure as Fed Chair began on Friday, who is planning to deploy quantitative tightening and shrink the central bank's balance sheet as hotter inflation is expected from the war and the closure of the Strait of Hormuz.
In short, investors are heavily concerned about the current conditions, especially where inflation may wind up. Shipping restrictions are prohibiting the movement of materials critical to important industries. The cut-off of oil has had an obvious effect on energy markets. However, other industries are affected, including a reduction of helium 3 needed for semiconductors and fertilizer for agriculture.
The Kobeissi Letter, a leader that provides commentary on global capital markets, noted that the 10-year yield was higher by 90 basis points than the S&P 500's earnings yield. It said that was the second-largest negative spread in 24 years. Except for a brief time in April 2025, the S&P 500 equity risk premium has been negative since mid-2024, meaning that, in theory, 10-year Treasurys offer a higher yield than the S&P 500.
"Bond yields definitely feel like they are getting unhinged," Subadra Rajappa, head of research at Societe Generale Americas, told Bloomberg Television. "The market is not only testing the Fed, it's putting Congress on notice. The longer that interest rates remain high, financing costs go higher.
More notes came from Giacomo Santangelo, a senior lecturer in the Department of Economics at Fordham University, as Warsh will have a tough job ahead of him.
"This is a geopolitical energy shock doing what monetary policy could not finish, forcing a reckoning with inflation that the Fed was already struggling to extinguish," he tells GlobeSt.com.
"Bottom line, the critical policy risk is that the Fed tightens based on aggregate consumer data that masks the underlying deterioration. This risks accelerating genuine demand destruction precisely when the consumer is most financially vulnerable."
And escalation will only make things worse. Should the U.S. and Iran re-engage in strikes or combat, oil prices will spike, with yields following suit. Buying a home, which was already out of reach for many, will become more expensive, as will lending in commercial real estate. But a peace deal could bring forth a much-needed calmness to the bond market.
The reaction to developments in the coming days and weeks will be critical.
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