The bond market just sent a message, and it wasn’t subtle. The 30-year US Treasury yield climbed to 5.121% on May 15, a level not seen since May 2025, while two-year and 10-year yields both touched 12-month highs in the same week.
Traders are pricing in roughly a two-thirds probability of a Fed rate hike by December 2026, according to Bloomberg data. In English: the market went from expecting relief to bracing for more pain.
What’s driving the yield surge
Two forces are converging here. Persistent inflation signals, including alarming producer price data, have refused to cooperate with the Fed’s timeline. Meanwhile, geopolitical tensions have pushed energy prices higher, adding fuel to an already stubborn inflation problem.
US real yields, which strip out inflation expectations, rose to 2.083% in mid-May. That’s the highest reading since late March and represents a meaningful tightening of financial conditions.
