The yield on the benchmark 10-year Treasury note pierced 5% for the first time since 2007 on Monday, a milestone that rattled global markets just as the Federal Reserve opened a two-day policy meeting on Tuesday widely expected to produce a rate increase rather than a cut.
The 10-year yield touched an intraday high of 5.012% before retreating to close near 4.96%, according to CNBC. The move capped a week-long global bond selloff that traders have tied to surging oil prices, swelling federal deficits, and a wave of corporate debt issuance from AI companies racing to fund data-center buildouts.
The timing compounded the shock. The Federal Open Market Committee convened Tuesday for a meeting that concludes Wednesday with a decision on the federal funds rate, currently set in a range of 3.50% to 3.75%. Traders in fed funds futures have priced in better-than-even odds of a quarter-point increase — what would be the first hike since July 2023 — after Fed Chair Kevin Warsh struck a hawkish tone at last month's Jackson Hole conference, saying this summer's inflation readings were "better than expected" but did not show that "underlying trends have meaningfully improved."
An AI-driven stock selloff collides with the bond market
The bond rout landed alongside a separate shock to equities. The Philadelphia Semiconductor Index tumbled 5.9% Monday, with Nvidia and Intel shares falling 3.4% and 5.6% respectively, after Anthropic Chief Executive Dario Amodei published a weekend essay arguing the AI industry should deliberately slow the pace at which it develops more capable models.
We must slow the pace at which we improve the capabilities of AI models. Progress will still seem fast, and we must make wise use of the time we gain.
Dario Amodei, "We Must Pace the Frontier"
OpenAI's Sam Altman and xAI's Elon Musk both publicly backed Amodei's call, an unusual show of alignment among rival AI chief executives that investors read as a signal the industry itself expects slower near-term growth. The S&P 500 fell 0.48% Monday to 7,619.98 and the Nasdaq Composite dropped 0.56% to 26,186.41, with traders also citing what CNBC described as a "shakeup" in the pipeline of AI-related public offerings.
Energy markets added to the inflation pressure the Fed must now weigh. Brent crude has climbed roughly 19% over the past month after a drone strike forced Saudi Arabia to shut its East-West pipeline and Houthi forces seized a strategic Red Sea island, developments that have pushed crude toward $107 a barrel and complicated the case for holding rates steady.
What comes next
The FOMC's decision Wednesday will arrive with an updated "dot plot" of rate projections and a press conference from Warsh, both of which markets will parse for signs of how far the committee intends to go. A hike would mark a reversal after years in which the Fed's post-pandemic tightening cycle gave way to a series of cuts, and it would raise borrowing costs just as heavier Treasury issuance and AI-linked corporate debt are already pushing long-term yields higher.
Higher yields carry direct consequences for the AI buildout at the center of Monday's stock selloff: much of the sector's data-center expansion has been financed with debt, and a sustained move above 5% on the 10-year would raise the cost of that borrowing just as some of the industry's own leaders are calling for a slower pace of investment. Mortgage rates and corporate borrowing costs more broadly are also expected to track the move, with economists saying the next 48 hours will determine whether Monday's yield spike proves a fleeting overshoot or the start of a sustained repricing.
The overlap of three shocks — a bond market flashing its highest borrowing costs in nearly two decades, a Fed on the cusp of its first hike since 2023, and an AI sector second-guessing its own growth trajectory — has left trading desks bracing for volatility through Wednesday's announcement. Analysts said the reaction in equities will hinge less on whether the Fed hikes, which futures markets now treat as close to settled, than on how Warsh characterizes the path beyond September and whether he addresses the AI-driven surge in corporate debt issuance directly in his press conference.
