What happened: The 10-year Treasury yield (^TNX) climbed as high as 5.04%, its highest level since 2007, on Tuesday. Meanwhile, the 30-year Treasury (^TYX) yield touched 5.39%.
What's behind the move: The move higher in yields comes ahead of the Federal Reserve's rate decision this week. Investors have priced in a 25 basis point rate hike following the Fed's FOMC meeting on Wednesday, with a 92% likelihood.
Bond yields remain high as oil prices (BZ=F, CL=F) have firmly moved above $100 per barrel, raising concerns that inflation will remain above the Fed's 2% target.
"At the same time, investors are insisting on being compensated for high levels of government debt and the ever-rising deficit," TradeNation senior market analyst David Morrison said.
The 10-year Treasury is used as a benchmark for mortgage rates and long-term borrowing, making debt more expensive to carry. Still, some strategists point to a resilient economy fueled by AI investment and a stock market backed by strong earnings.
"US economic growth is impressive, and bond yields are only back to levels seen before the Great Financial Crisis, which was followed by an extraordinary period of financial repression from the Federal Reserve," Morrison said.
Read more: How soaring Treasury yields could hit your finances
What else you should know: The rise in borrowing costs has been global, with rates in countries such as Japan, the UK, and Germany also rising.
Some strategists note the move may also reflect an unwinding of the yen carry trade, in which investors borrow cheaply in Japan and invest in higher-yielding assets abroad. As Japanese rates rise and the yen strengthens, the trade becomes less attractive.
The move higher also comes as corporate giants issue increasing amounts of debt to help fund spending and the build out of AI infrastructure, adding to the supply of bonds investors must absorb.
"Even though the rise in bond yields so far this year has been orderly, and it has not happened overnight, these elevated yields could be here to stay for some time," said Carol Schleif, chief market strategist at BMO Wealth Management.
Ines Ferre is a senior business reporter for Yahoo Finance.