Yields on 10-year Treasury notes reached 5.34% on Thursday — a level the government debt market had not touched since 2002 — as a selloff that had been building throughout the year extended into the fourth quarter, driving borrowing costs on U.S. sovereign debt to their highest point in more than two decades.

Around mid-morning in New York, demand for Treasuries picked up and the 10-year yield pulled back to around 5.26%. Yields on the 30-year Treasury bond briefly touched a level not seen in 24 years before pulling back to settle at 5.61%, according to figures from a news outlet.

The selloff in those markets followed a three-month rise in U.S. Treasury yields that multiple data sources described as the steepest quarterly gain in that benchmark recorded at any point during the current century, a stretch running through late September. When bond prices drop, yields move in the opposite direction — upward.

Persistent gains in energy costs have kept consumer prices above target, while the rapid build-out of artificial intelligence infrastructure has pulled investment funds toward equities and away from fixed income, nudging upward both growth projections and expectations for where short-term borrowing rates will settle over time. Rate futures markets are now pricing in a minimum of three additional Federal Reserve rate increases before the middle of 2027, data from derivatives trading indicates.

When bond yields climb, the knock-on effect reaches both the private and public sectors — borrowing becomes costlier for companies, while governments must allocate a greater share of their budgets toward servicing existing debt.

Debt markets around the world are facing the same strain. Thursday brought a notable milestone for UK government debt, as the 30-year gilt yield climbed above 6 per cent — a threshold last breached in 1998.

Borrowing costs on French ten-year government bonds climbed to a level not recorded since 2002, drawing near the 5% threshold, while the gap between French and German debt yields widened toward territory last visited during the eurozone financing strains of the 2010s, according to a broadcast news outlet. Borrowing levels in Japan's long-term debt market climbed to a point last touched in the mid-1990s, with the benchmark 10-year note posting its steepest rate in roughly three decades.

Data published by the Institute of International Finance, headquartered in Washington, show that governments of higher-income countries paid out more than $3.3 trillion in interest on internationally traded sovereign debt over the past year — a sum that, by the institute's own calculations, outpaced global spending on artificial intelligence, defence, and clean-energy projects combined during that same stretch.

On Thursday, DoubleLine Capital's chief executive Jeffrey Gundlach indicated that underlying equity conditions are weakening even as headline indexes have yet to experience the steep drops that bond market strain has tended to precede historically. Weeks before that point, the 10-year yield had drawn within reach of the 5% threshold, with a lower-than-forecast inflation reading offering a temporary pause in the downward price pressure on bonds.