Ten-Year Treasury Yield Tops 5 Percent

The 10-year U.S. Treasury yield broke above 5 percent on Monday. This marks a rise of nearly one percentage point since late February. The level approaches the peak seen in 2007.

Energy costs are driving this shift. The Iran conflict has pushed gasoline and diesel prices sharply higher. These costs now feed directly into inflation metrics.

Energy Costs Drive Inflation

Gasoline reached a national average of $4.29 per gallon. Diesel prices climbed above $6. According to the Bureau of Labor Statistics, consumer prices rose 0.4 percent in August. Annual inflation stood at 3.4 percent.

Gasoline prices jumped 3.9 percent during the month. This single category accounted for more than one-third of the total monthly CPI increase. Energy prices overall rose 16.3 percent from a year earlier.

Mortgage Rates Hit One-Year High

The average rate on a 30-year fixed mortgage reached 7.08 percent on Friday. This is the highest level in over a year. Households face higher monthly payments as a result.

Investors expect the Federal Reserve to raise its target rate. CME Group data shows the probability of a hike now exceeds 90 percent. However, the Fed controls short-term rates, not long-term borrowing costs.

Debt Servicing Costs Surge

The federal government spends roughly $2 trillion more annually than it collects in revenue. Federal debt held by the public equals about one year of U.S. economic output. Interest expenses currently run at approximately $1 trillion per year.

Projections indicate interest costs will approach $2 trillion over the next decade. Washington must refinance maturing debt at today's higher rates. This shifts revenue from other priorities to debt service.

Treasury Secretary Scott Bessent has attempted to stabilize bond markets. These interventions have not meaningfully reduced borrowing costs. A proposal for $5,000 payments to citizens could add $1.3 trillion to the fiscal burden.