US Treasury Yields: A Decade of Shifts and the Road Ahead in 2025

Over the last decade, U.S. Treasury yields have reflected the complex interaction between monetary policy, inflation expectations, geopolitical tensions, and investor sentiment. Through post-crisis troughs to inflation-fueled spikes, the yield curve has responded to shifting economic fundamentals and policy changes. In 2025, bond yields continue to be high, with the 10-year Treasury yield around 4.7%, reflecting investors' concerns regarding entrenched inflation, geopolitical tensions, and fiscal uncertainty.

During the mid-2010s, yields were held back by global economic uncertainty and the Federal Reserve's dovish policy. Following the 2008 financial crisis and the Eurozone debt crisis, global growth was sluggish. Nations such as China showed signs of slowing down, while commodity prices collapsed. Even though the Fed discontinued its third round of quantitative easing in 2014, it increased interest rates only once in 2015, citing weak wage growth and low inflation. Risk-averse investors still flocked to the safety of U.S. Treasuries, maintaining yields at historically low levels.

The years 2017 and 2018 were the years of increasing yields as the economic strength of the U.S. reappeared. The tax reforms of the Trump administration stimulated business confidence and fiscal stimulus, increasing growth expectations and inflationary fears. The Federal Reserve reacted by raising rates gradually, from 0.75% at the beginning of 2017 to 2.5% at the end of 2018. The onset of trade tensions between the U.S. and China in 2018, however, caused market uncertainty and volatility.

By 2019, Treasury yields declined once more as the U.S.-China trade war escalated. New tariffs disrupted supply chains worldwide, lowering investment and economic sentiment. In response, the Fed shifted from tightening to easing, reducing rates three times to maintain growth. The bond market responded by pushing yields lower. 

During 2020, the COVID-19 pandemic caused shockwaves in financial markets. Investors scrambled to the safety of U.S. Treasuries, driving the 10-year yield to record lows around 0.5%. The Federal Reserve cut interest rates to zero and initiated enormous emergency lending and asset purchase programs. At the same time, the U.S. government released trillions of fiscal stimulus, but uncertainty was high, and yields remained depressed.

 

As the economy re-opened in 2021 and 2022, supply chain dislocations, strong consumer demand, and tight labor markets drove inflation to multi-decade levels. As CPI inflation hit above 6% in late 2021, the Fed started to taper asset purchases and hike interest rates sharply. Yields climbed steeply as markets digested the new tightening cycle and the inflation perspective.

From 2023 on, inflation turned out to be more long-lasting than most anticipated. Services inflation, wage inflation, and geopolitical shocks accounted for ongoing price hikes. In 2024, after Trump's re-election, the administration renewed and threatened across-the-board tariffs on Chinese, Mexican, and European imports. Those protectionist policies escalated input costs and inflation expectations while also bringing new trade uncertainty.

Tariffs had two effects on the bond market: they raised inflation by increasing the cost of imports and threatened global supply chains, slowing growth. This cost-push inflation made it harder for the Federal Reserve to ease policy, and it had little choice but to keep rates higher for longer to anchor expectations. Even with some slowing in the economy, inflation did not decline to the Fed's 2% target, leaving the central bank with less latitude to ease policy.

In early 2025, strong economic data—like a surprise expansion in manufacturing PMI—test the widespread perception that the economy was slowing. ISM Manufacturing PMI expanded to 50.3 in March, its first growth in more than a year, displacing expectations of soon-to-be-cut Fed rates. Meanwhile, fiscal deficits were still large, boosting the supply of Treasuries available in the market.

Investor faith, especially from foreign investors, started to falter. Countries such as China and Japan, long-time heavy holders of U.S. debt, have begun to cut back. Treasury Secretary Janet Yellen and Fed Governor Chris Waller both cautioned that ongoing inflation, large deficits, and uncertain trade policy threatened to erode global confidence in U.S. Treasuries, necessitating higher yields to entice investors.

In short, U.S. Treasury yields are increasing as a result of a convergence of events: sticky inflation, renewed tariffs, large fiscal deficits, and declining foreign demand for U.S. debt. While the Federal Reserve faces a complicated landscape of high inflation and potential recession threats, bond markets continue to be volatile and sensitive to policy signals. The journey forward will require careful calibration from policymakers and keen watchfulness from investors, as the Treasury market remains at the forefront of dictating the global economic story.

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Prepared by Anand Gorasiya, Finance Intern at FInvesTree