'I can appreciate what Bessent is trying to do - slow the ascent,' says Well Fargo's Samana of bond yields

Treasury Secretary Scott Bessent has called himself the nation's top "bond salesman." The bond market's selloff has yields at their highest level of Trump 2.0.

An unrelenting rout has global bond yields touching their highest levels since 2008, driving up borrowing costs for households, businesses and world governments.

The 10-year Treasury yield BX:TMUBMUSD10Y now sits at its highest level in 20 months, and the loftiest of President Trump's second term in office.

The path higher comes as traders focus on the U.S. national debt hitting $40 trillion, inflation concerns from the Iran war and the frenzy of new debt being issued for the artificial-intelligence race.

"We are on a warning track, in terms of how quickly long-end rates have gone up," said Sameer Samana, head of global equities and real assets at the Wells Fargo Investment Institute, pointing to the sharp rise in 10- and 30-year yields in the past several months.

"I would argue all those rates of change are probably a bit too fast," Samana said. However, the rise has yet to reach a tipping point, he added.

The benchmark 10-year Treasury yield BX:TMUBMUSD10Y on Tuesday was on the cusp of 4.8%, up from a low of 4% at the start of the Iran war in March, according to FactSet.

Importantly, that's above the level that preceded Treasury Secretary Scott Bessent's surprise market intervention in mid-August. The 30-year Treasury yield BX:TMUBMUSD30Y also has increased to 5.26%, from about 4.7% in early March.

Despite climbing yields, Bessent said the U.S. wasn't in any "kind of a dire situation," while speaking Tuesday with Larry Kudlow during an appearance on Fox Business. He also said "inflation expectations are flat to down," arguing that "this is a growth story."

As yields rise, Wall Street has been coming around to the idea that Bessent and Federal Reserve Chairman Kevin Warsh don't necessarily need to coax long-dated yields lower - only keep them from flying out of control.

As part of this, Bessent in August touted his department's "big tool kit," including its looming increases to buybacks of long-dated U.S. debt, and vowed that more details on plans to reduce the growing deficit were coming. That only briefly arrested the selloff.

"I can appreciate what Bessent is trying to do - slow the ascent," Samana said.

Yields matter, with the S&P 500 SPX, Dow Jones Industrial Average DJIA and Nasdaq Composite COMP all logging a third straight session of declines on Tuesday. But so does the pace of change in rates.

When bond prices fall, yields rise - giving investors more incentive to own U.S. government debt, typically considered one of the safest investments in the world from a default perspective. But a rapid jump in yields can signal forced selling in the market or a dysfunction that could spiral.

"At this stage, we do not currently see signs of a market crisis developing," said David Tam, U.S. rates strategist at BNY. "In the U.S. Treasury market, functioning appears orderly, liquidity conditions appear broadly stable and bid-ask spreads remain relatively contained."

Any deterioration of market liquidity or evidence of forced deleveraging by investors, such as during the 2022 U.K. debt minicrisis under former Prime Minister Liz Truss, could be a warning shot, said BNY's Tam.

Yet overall yield levels could start mattering a lot more in markets if the 10-year Treasury yield were to top 5%. It "could be the straw that breaks the camel's back," said Ron Albahary, chief investment officer at LNW.

Holding in the 4% to 5% range isn't a major concern, given that companies have been able to adapt to those more historically normal yield levels, Albahary said. But any trading consistently above the psychologically important 5% level could be problematic, he added, because it tends to lead to a risk-off market backdrop.

With that milestone within sight, Albahary said it makes sense for investors to trim some of their holdings after several years of double-digit gains in stocks, and to rebalance into core fixed income, where yields have become more attractive.

With the calendar flipping to September, the countdown to November's U.S. midterm elections also has begun in earnest. Affordability and the AI data-center build-out look poised to be crucial topics for voters.

Still, it's tough to pry focus away from the powerful bull market in stocks. Tech powered an estimated 52% yearly earnings growth rate for the S&P 500 in the second quarter, according to FactSet. Yields might start to weigh on earnings down the road, but that hasn't been the main focus.

"You are not going to look at bonds and say, 'I can earn 5% over here - let me turn down double-digit gains in stocks,'" said Samana at Wells Fargo.

Victor Reklaitis and Greg Robb contributed.

-Joy Wiltermuth