Bond market bares its teeth again as 10-year yields climb to 5.12%

The bond market is back to its old tricks. The 10-year Treasury yield has climbed to 5.12%, and the 30-year is pushing 5.45% heading into the weekend — right back at the levels that drove yields to multi-decade highs in the first place. Soothing talk about easing geopolitical tensions earlier in the week has already worn off.

The inflation picture isn't helping. October's CPI report showed headline prices up 0.4%, beating the 0.3% consensus, while core inflation also came in hotter than expected at 0.3%. Add fresh reports of strikes in Iran and President Trump's declaration that the US doesn't need a deal with Tehran, which erased an early-week drop in oil prices, and the threat of another energy-driven inflation shock is alive again.

Washington's borrowing habit is making it worse. The US ran a record $404 billion budget deficit in October, up from $284 billion a year earlier. Investors aren't lining up to fund it: the latest $25 billion 30-year Treasury auction drew a bid-to-cover ratio of 2.36, down from 2.54 previously, a sign of weaker demand at the long end of the curve.

That combination has pushed the term premium — the extra compensation investors demand for the uncertainty of holding government debt — into the spotlight. Lingering inflation risks and a fiscal deficit showing no sign of slowing mean lenders want to be paid more for a 30-year commitment. A Fed pause might buy markets some temporary relief, but it does nothing to fix those structural problems.

Tech stocks are the ones feeling the heat. Investors were already nervous about the huge AI infrastructure spending bill and whether it can justify lofty expectations, and Nvidia's recent troubles shook confidence further. Surging Treasury yields pile on: they make future earnings worth less in today's money and raise financing costs for companies spending heavily on growth — an awkward squeeze while investors are still deciding how much to pay for the AI dream.