The US 10-year Treasury yield is approaching the 5% mark, intensifying upward pressure on long-end rates and heightening market concerns over American fiscal and monetary policy risks.

On Monday during trading, the 10-year Treasury yield stood at 4.791%, after closing at 4.78% last Friday. Since the Federal Reserve initiated rate cuts last November despite lingering inflation pressures, the 10-year yield has climbed roughly 80 basis points cumulatively. Meanwhile, the 30-year Treasury yield has already broken through 5% ahead of the curve, reaching 5.24% last Friday — its highest level in nearly two decades.

Treasury Secretary Bessent has repeatedly attempted to suppress long-end rates, but with limited effect. As the supply of US Treasuries continues to expand, the market demands higher yields to attract marginal buyers, and persistently rising long-end rates will further elevate government financing costs while placing downward pressure on valuations of risk assets such as equities and credit.

Looking at the driving forces, long-end rates currently face a triple threat: sticky inflation, accommodative monetary policy, and expanding fiscal deficits. What truly deserves attention is not merely whether the 10-year yield can breach 5%, but rather — once that level is crossed — whether 5% represents a brief cyclical peak or a new interest rate equilibrium.

Triple Pressures Propelling Long-End Rates Higher

The current ascent in the 10-year Treasury yield is not driven by a single factor but is the combined result of inflation, monetary policy, and fiscal supply dynamics.

On one front, US inflation has yet to genuinely return to the 2% target level, yet the Fed's consecutive rate cuts in November and December have kept most financial conditions relatively loose, excluding real estate. Markets therefore worry that if monetary policy remains overly accommodative, inflation could persist for an extended period, requiring higher yields on long-duration bonds to compensate for that risk.

On another front, US fiscal policy has not contracted meaningfully — tax cuts and spending increases continue unabated. With fiscal deficits widening, the government must issue more Treasuries to finance its operations. When new supply grows persistently while market buying power cannot fully absorb it, yields must rise to attract additional capital.

The 10-year yield currently sits approximately 115 basis points above the effective federal funds rate. This substantial term premium already reflects market concerns over long-term inflation, fiscal deficits, and debt sustainability.

5% Is Not Insurmountable — The Real Pressure Comes From Debt Magnitude

From a historical perspective, a 10-year Treasury yield at 5% does not imply the US economy cannot withstand it.

In the decades preceding the 2008 quantitative easing launch, the 10-year yield was persistently above 5%, once peaking near 15%. During the dot-com bubble era, 10-year yields mostly ranged between 5% and 8%, and the US economy still maintained rapid growth at the time.

What is genuinely different now is the sheer scale of debt. US Treasury outstanding debt has reached approximately $40 trillion. Even a modest rise in yields will gradually increase government interest expenses through debt refinancing, further compounding fiscal pressure.

Between 2002 and 2006, the 10-year yield briefly dipped below 5% when the Fed lowered its policy rate to 1% and held it there for an extended period, allowing the housing bubble to inflate steadily. After the 2008 financial crisis erupted, the Fed launched quantitative easing, and only then did the 10-year yield fall further below 4%.

Accordingly, 5% itself is not a level the economy cannot tolerate. The real question is whether, given roughly $40 trillion in outstanding debt, the market remains willing to continuously absorb the US government's ever-expanding debt issuance at yields below 5%.

Will the "5% Moment" of 2023 Repeat Itself?

What markets are most focused on now is whether a break above 5% for the 10-year yield would mirror the market action witnessed in 2023.

On October 23, 2023, the 10-year yield briefly surged past 5% intraday, touching a high of 5.02%. However, that level quickly triggered substantial buying, sending the yield plummeting 19 basis points to 4.83% that same day, followed by a sustained decline over the subsequent two months.

This time, circumstances may differ. As yields again approach 5%, long-term capital may still re-enter the market, temporarily suppressing yields. But if fiscal deficits continue to widen, Treasury supply keeps increasing, and the Fed maintains a relatively accommodative policy stance, then 5% may no longer function as a clear resistance level — gradually becoming the new operational midpoint instead.

The 30-year Treasury has already signaled as much. Its yield climbed to 5.24% last Friday, marking a nearly 20-year high, yet it has not exhibited the rapid reversal seen when the 10-year hit 5% in October 2023.

Fiscal and Monetary Policy Will Determine Whether 5% Can Hold

Whether the 10-year Treasury yield can stabilize around the 5% level ultimately depends on whether US fiscal and monetary policy undergoes meaningful shifts.

On the fiscal side, if tax cuts and spending increases continue, deficits and Treasury supply will be unlikely to contract significantly in the near term. On the monetary side, if the Fed persists in signaling accommodation while inflation remains not fully contained, market confidence in the Fed's ability to control inflation could erode, requiring even higher yields on long-end bonds to attract investors.

More critically, expanding fiscal deficits imply greater bond supply, while a looser monetary stance may reinforce market concerns over long-term inflation — together amplifying the term premium. The massive existing debt stock will further magnify the fiscal impact of rising rates.

Therefore, until fiscal deficits, debt scale, and inflation risks show fundamental changes, the march of 10-year Treasury yields toward 5% or beyond may not be a one-off market shock but rather a process of repricing the US long-term interest rate equilibrium.