The bond market has caught one bad break after another over the past several years, and it finally pushed the 10-year Treasury yield to a 19-year high above 5% this past week.

First the pandemic and then war have restricted the supply of goods, pushing inflation higher. At the same time, government deficits have flooded the market with bonds and fueled consumer spending.

Supply constraints and deficit-fueled demand have delivered a double blow to bonds, said Steve Boothe, head of global investment grade at T. Rowe Price. "I don't think you can look at one without considering the other."

The new high for the critical borrowing benchmark has created starkly different conditions for markets and the economy from the beginning of the decade, when yields dipped well below 1%. Here's how we got here:

The 10-year yield was last this high in 2007, before the Federal Reserve began slashing interest rates in response to early signs of what would become the global financial crisis. That ushered in a long period of ultralow rates, as the economy grew slowly and inflation remained low for most of the 2010s.

Many on Wall Street started to believe low rates had become a permanent fixture and borrowing would always be cheap. Tech startups with easy access to capital pursued loss-leading strategies to acquire customers, and private-equity firms went on an acquisition binge powered by cheap debt.

When inflation finally started surging in 2021, a consensus held that it would just be temporary, the result of numerous pandemic-related supply disruptions and temporary government stimulus that spiked demand. Then-Fed Chair Jerome Powell said that the inflationary episode would be "transitory."

But by the end of the year, he had retired the word. In a November 2021 congressional hearing, Powell signaled that the central bank would need to raise short-term borrowing costs to temper an overheating economy. In the coming weeks, bond yields began to jump.

In 2022, the Fed embarked on the most aggressive rate-hike campaign in decades. Existing, longer-dated bonds that paid out comparatively low interest tumbled in value.

Many expected rapidly rising borrowing costs would break something and spark a recession. The S&P 500 dropped 19% that year, its worst since 2008, as traders positioned accordingly.

Sure enough, in early 2023, Silicon Valley Bank collapsed after a customer panic tied to losses on the bank's bondholdings during the rate-hike campaign.

But the recession never came. The U.S. consumer remained resilient, corporate profits held up, and companies began investing heavily in artificial-intelligence technology.

Yields began to climb anew in the summer of 2023, as traders unwound recession bets. The federal government surprised traders with several larger-than-expected auctions of new bonds, putting more attention on the growing national debt and pressuring yields further. That October, the 10-year yield touched 5% for the first time since 2007, but fell back below the symbolic threshold almost immediately.

In November 2024, Donald Trump was elected president for the second time, triggering what Wall Street called a Trump trade 2.0, with yields rising on expectations for faster economic growth, higher inflation and larger deficits.

That initial trade faded before Trump even assumed office. But investors' expectations were largely on point, as Trump has pursued a policy of tariffs and tax cuts that have kept both deficits and inflation elevated.

Deficits put upward pressure on yields in two ways. They translate to more government borrowing and a greater supply of Treasurys, which will drive yields higher unless demand can keep up. They can also act as stimulus, pressuring the Fed to keep rates higher so the economy doesn't overheat.

The annual budget deficit has been hovering around $2 trillion, or 6% of gross domestic product, in recent years, a level previously reserved for the World War II era and severe recessions.

The Fed was still hopeful enough about inflation and worried enough about the labor market that it gradually lowered rates in 2025, keeping yields in check. The 10-year Treasury yield hit a recent low of just under 4% in late February. The next day, the U.S. launched strikes on Iran, starting a war that has limited oil-tanker traffic through the Strait of Hormuz, sending both oil prices and inflation higher.

With measures of inflation once again accelerating, newly appointed Fed Chairman Kevin Warsh told reporters this past week that higher rates are once again necessary to combat inflation. The central bank delivered its first rate hike since 2023, and the 10-year Treasury yield closed Friday at 4.995%.