Quick OverviewOn Thursday, the 10-year US Treasury yield surged to 5.342%, marking its highest point since the beginning of 2002.This milestone broke through the previous peak set in 2007 as the bond market selloff intensified.The 30-year Treasury yield climbed alongside, hovering around 5.64%.While August’s PCE inflation figures fell short of predictions, core inflation remained significantly above the Fed’s 2% objective.Market expectations for an October interest rate increase by the Federal Reserve declined to approximately 37-38%, down from more than 45% prior to the inflation release.On Thursday, the benchmark US 10-year Treasury yield surged to 5.342%, a level not witnessed since the opening months of 2002.10-Year Yield Futures,Sep-2026 (10Y=F)This spike occurred as bond market participants accelerated their selling activity. The yield broke through its prior record from 2007, prompting market watchers to question how much further this upward momentum might extend.During the third quarter, this globally-watched benchmark experienced its largest quarterly increase this century—a remarkable achievement spanning decades of market history.The longer-dated 30-year Treasury yield followed suit, reaching approximately 5.64% on Thursday, revisiting territory not seen since 2002.Key Factors Behind the Bond RoutMultiple dynamics are contributing to the upward pressure on yields. Persistent elevated energy costs continue to fuel anxieties about prolonged inflationary conditions.WARNING: US Treasuries just posted their WORST month in four years, per FT.The 10-year yield surged more than half a percentage point in September to 5.3%, the sharpest rise since September 2022.The 30-year yield is trading at its highest level since June 2002.Investors… pic.twitter.com/FycpiaSeqb— Coin Bureau (@coinbureau) October 1, 2026Despite signs of stabilizing Middle Eastern oil supply chains, diplomatic efforts between the US and Iran have stalled, maintaining crude prices at levels typically associated with geopolitical conflicts.The expanding federal debt burden represents another critical concern. Treasury market participants have faced additional strain in recent weeks due to bond buyback programs falling short of projections.According to Patrick Munnelly, a market strategist at Tickmill Group, escalating government budget shortfalls combined with substantial Treasury issuance volumes will likely sustain upward yield momentum. He also highlighted corporate borrowing related to artificial intelligence infrastructure development as a contributing element.Latest Inflation Numbers Present Conflicting PictureFresh inflation metrics emerged this week. August’s PCE price index advanced 0.3%, falling short of the anticipated 0.4% gain.The core PCE inflation measure increased 0.2% on a monthly basis, likewise missing analyst projections.On an annual basis, core PCE inflation registered a 3% increase for the twelve-month period concluding in August, representing a decline from the prior month’s 3.3% reading.Despite this moderation, inflation persists at levels considerably above the Federal Reserve’s established 2% benchmark. Bill Adams, chief US economist at Fifth Third Commercial Bank, noted that while the inflationary trajectory is declining, it remains substantially distant from the Fed’s objective.Adams emphasized that the central bank’s upcoming policy decision will hinge on September’s inflation figures, which remain unreleased.Additional economic indicators demonstrated resilience. Revised output data revealed the US economy expanded more robustly than initially estimated during the second quarter.September’s private sector employment gains also exceeded projections, as reported by ADP.Market Expectations for Fed Policy AdjustmentFinancial markets currently assign a 37% to 38% probability to a Federal Reserve interest rate increase in October, retreating from the 45%-plus odds calculated before the latest inflation disclosure.Yields experienced a temporary decline immediately following the inflation announcement but reversed course as market participants digested the complex signals emanating from broader economic indicators.The two-year Treasury yield, which serves as a sensitive gauge of near-term interest rate expectations, climbed to 4.893% by afternoon trading.International bond markets exhibited contrasting movements. Germany’s 10-year bund yield declined 5 basis points to settle at 3.563%, while the UK’s 10-year gilt yield edged lower to 5.392%.Market participants are now focused on upcoming US economic releases. Thursday brings weekly unemployment claims data, with September’s comprehensive employment report scheduled for Friday. These publications could significantly influence projections regarding the Federal Reserve’s policy trajectory.The post US Treasury Yields Soar to Highest Point in Over Two Decades appeared first on Blockonomi.