The yield on the 10-year Treasury reached 4.80% on Tuesday, its highest level since early 2025. The 5-year Treasury, the benchmark for auto loans, touched 4.55%, its highest since October 2025. The 30-year hit 5.248% last month, the highest in about 19 years. Fighting in the Middle East pushed oil prices up and renewed inflation worries. Federal Reserve Chair Kevin Warsh signaled last Friday that the central bank may still need to raise its short-term rate in coming months if inflation stays elevated. The average 30-year fixed mortgage is near its highest level in a year.

In February 2025, Treasury Secretary Scott Bessent said that when Trump talks about wanting lower interest rates, he means the 10-year Treasury yield, not the short-term rate set by the Fed. “The president wants lower interest rates and in my talks with him, he and I are focused on the 10-year Treasury,” Bessent said. “He is not calling on the Fed to lower rates. He believes that if we deregulate the economy, if we get this tax bill done, if we get energy down, then rates will take care of themselves.” The 10-year had just fallen from above 4.8% before the January 2025 inauguration to around 4.4%. The administration picked a metric and claimed it as its own.

Eighteen months later, the 10-year is back to 4.80%. The Treasury Department has responded with direct intervention. Last month it announced it would at least double the size of its government debt buybacks, running from September 9 through November 4. Yields fell about 10 basis points on the announcement, then rebounded within a day and wiped out the decline. Bessent said the buybacks were partly about signaling that current yields do not reflect underlying fundamentals.

The forces pushing the 10-year higher have little to do with the Fed. The federal budget deficit will top $2 trillion this year, about 6% of the economy, according to the Congressional Budget Office. Total federal debt reached $40 trillion. Large tech firms are borrowing heavily to build data centers for AI. And the sell-off is global. Eurozone inflation jumped to 3.3% in August, the highest in three years. Ten-year German bonds reached 3.35%, the highest in more than 15 years. Ten-year UK bonds are paying 5.14%, approaching levels last seen during the financial crisis. Japanese rates are rising too. Investors are demanding more compensation for holding sovereign debt everywhere.

Warsh is not ruling out a rate hike. Trump said last week that Warsh will “do what he has to do” on possible rate hikes. That is a meaningful shift from an administration that spent two years arguing the Fed should cut. But the Fed already learned this lesson once. As Bessent noted back in 2025, the Fed did a jumbo rate cut and the 10-year went up. Short-term policy and long-term yields have decoupled. A rate hike would push short rates higher without any guarantee that the 10-year follows in the direction anyone wants.

The 10-year sets the floor for mortgage pricing, drives cap rate expectations, and determines whether the roughly $930 billion in commercial loans maturing this year can refinance at terms borrowers can service. At 4.80% with a possible Fed hike ahead, that assumption is now in question. Cap rates that penciled at 4.4% do not pencil the same way at 4.8%. Properties underwritten in the spring on an expected refinancing window may find that window closed. Properties underwritten in the spring on an expected refinancing window may find that window closed.