The U.S. 10-year Treasury yield rose on Tuesday to its highest level since early 2007, extending its climb after successfully breaking through the key 5% threshold this week. The 10-year yield jumped 1.3%, touching a session high of 5.030% and holding near that level around 1:20 a.m. Eastern time (13:20 Beijing time).

The latest surge in yields is closely tied to growing market expectations that the Federal Reserve will raise interest rates by at least 25 basis points this week. Recent inflation data continue to show stubborn price pressures well above the Fed’s 2% annual target, further reinforcing bets on a rate hike.

Meanwhile, the deteriorating U.S. fiscal position — widening deficits and rising debt levels — is also prompting investors to demand a higher yield premium to remain willing buyers of U.S. Treasuries.

The 5% mark is seen as a key psychological threshold for the benchmark 10-year yield. A sustained break above it could threaten the already fragile stock market rally, as investors may shift toward the higher, relatively safe returns of the bond market rather than continue holding heavily appreciated equity assets. Amid the yield spike, U.S. stock index futures fell sharply in early trading Tuesday. S&P 500 futures were down 0.3%.