The yield on the benchmark U.S. 10-year Treasury was on its way to setting another multiyear high on Friday, as traders factored in the likelihood that the Federal Reserve’s monetary tightening will end up pushing its benchmark interest rate above 5%.

What’s happening
  • The yield on the 2-year Treasury TMUBMUSD02Y, 4.542% slipped to 4.543% from 4.608% on Thursday. Thursday’s level was the highest since Aug. 8, 2007, based on 3 p.m. figures from Dow Jones Market Data.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 4.279% rose to 4.291% from 4.225% Thursday afternoon. Thursday’s level was the highest since June 17, 2008.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 4.364% increased to 4.359% from 4.213% on Thursday. Thursday’s level was the highest since July 28, 2011.
What’s driving markets

This week has seen a surge in yields, reflecting upward moves in the expectations of how high the Federal Reserve’s benchmark interest rate will go with the peak rate known as the terminal rate.

The Treasury market remained under significant pressure as investors penciled in a higher terminal fed-funds rate of up to 5.02%, strategists said. However, traders pulled back on the likelihood of another 75 basis point hike in December, after an article was published by The Wall Street Journal. However, the chance of such a move occurring was still seen as being more than 50%.

Read: Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes

There’s also continued uncertainty in the U.K. over who will replace Prime Minister Liz Truss, who has announced her resignation, and on whether a new fiscal plan will be unveiled on Oct. 31, just three days after a new prime minister takes office.

See also: British pound, bonds slide on further political uncertainty as retail sales disappoint

What analysts are saying

“The market continues to front-load Fed policy even though the signs of disinflation are increasing,” said Ben Emons of Medley Global Advisors. “The Philly Fed prices paid diffusion index is stalling while the CPI Nowcast is slowly increasing.”

“Bond markets push Fed expectations higher when forward-looking data is confirmed by real-time data that inflation pressures are not abating. What is remarkable is the market has been consistent in its thinking. With each iteration, fed-funds futures price in a higher rate but with an expectation that the peak will happen in between March and June next year.”