The summer selloff in U.S. government bond prices has intensified since Labor Day, taking a toll on some of the hottest sectors of the U.S. stock market.

Many investors had hoped for some breathing room in the fall after nearly two years of declines in Treasury prices that repeatedly beat Wall Street's expectations. Today, the yield on the 10-year Treasury note has risen above 4.5 per cent, a 16-year high. The 10-year yield is a key benchmark for borrowing costs for everything from home mortgages to corporate loans. At the same time, short-term Treasury yields have risen sharply, with the two-year note above 5.1 per cent.

The turmoil in the Treasury-bond market has spilled over into some other markets. The surge in Treasury yields has hit stocks in a number of ways, including making stocks less attractive relative to bonds and increasing companies' borrowing costs.

The rise in Treasury yields has hit technology stocks particularly hard, as the value of future profits falls relative to the risk-free return of holding Treasuries to maturity. Shares of tech giants such as Amazon.com Inc. and Apple Inc. fell 4.9% and 6.3%, respectively, in September after surging earlier this year. The tech-heavy Nasdaq Composite Index fell 5.4%.

What are the main driving forces behind the moves in the US bond market? Despite the Federal Reserve raising interest rates at the fastest pace in decades, the U.S. economy remains solid and continues to grow. As a result, some investors are betting that the Fed will keep interest rates high for years to come, either to keep fighting inflation or because the Fed sees no pressing need to lower rates much.

Ahead of last week's Fed meeting, investors thought some officials would signal that they now expect fewer rate cuts next year than previously forecast. However, their forecasts for interest rates by the end of 2024 were even higher than expected, reflecting a broad shift in attitudes among officials.

"The market is coming to terms with the fact that rates are going to be higher in the medium to long term," said Richard Chambers, global head of repo trading and co-head of short macro trading at Goldman Sachs.

While the S&P 500 is still up 13 percent year-to-date, it is down 9 percent since yields began rising in 2022. When the 10-year Treasury yield hit 4 per cent at the end of July, the stock market's rally for the year was largely halted.

Some analysts also warn that stock valuations in general look overvalued, measured by the yields investors can earn on government bonds. Others argue that these valuations will look more reasonable once bond yields start to fall.

But over time, yields have risen further.

For bond investors, rising yields mean higher future income. But this comes at a cost, as new bonds issued at higher interest rates cause the price of older bonds with lower coupons to fall.

A widely tracked index of investment-grade bonds, accounting for interest expenses and price changes, was down 0.2% this year through Friday. The index consists mainly of U.S. Treasury bonds, government-backed mortgage-backed securities and corporate bonds. The index fell 13 per cent last year and 1.5 per cent in 2021, the first time since the index's inception in the 1970s that total returns have been negative for two consecutive years.

Many think yields may have peaked.

The latest projections from Fed officials show US inflation falling to 2 per cent and gross domestic product growth falling to between 1.5 per cent and 2 per cent by 2026. Subadra Rajappa, head of U.S. rates strategy at Societe Generale, says that if the Fed's forecasts prove prescient, "I'm not sure yields have much further to go." Rajappa expects a collapse of the domestic or global economy if yields stay high for an extended period.

However, some investors believe that the supply and demand situation in the market will keep yields high.

While the Federal Reserve has stopped buying bonds in recent years to support the economy, Treasury issuance has surged recently because of the growing federal budget deficit.

Funds from the household sector, money market funds and pension investment plans took up the additional issuance; The household sector includes hedge funds and other private investors. But in the coming quarters and years, that demand will be tested.

"The marginal pool of buyers of U.S. Treasuries is not the same anymore, it's probably diminished," said Jason Granet, chief investment officer at BNY Mellon in New York. "The Fed is not a buyer, banks have historically bought very little Treasuries, and now the banking system is shrinking." These factors combine to make it possible for US Treasuries to be sold at different prices. That means higher yields -- it's very simple."