Higher borrowing costs also threaten the stock rally. Bond bears have pushed 10-year US Treasury yields to the cusp of 5% as they await US inflation data that stands to determine expectations for a Fed interest-rate hike next week. The yield on 10-year notes has climbed almost 20 basis points, or 0.2 percentage points, this week and is approaching levels not seen since 2007.

The moves have spilled over into markets worldwide, sending a gauge of global yields to its highest since 2007. Inflation has run above the central bank’s target for half a decade and rising fuel prices threaten to push it higher still. With the consumer price index report due at 8:30 a.m. in Washington, there’s a real question about what the Fed will do next.

Traders price in a roughly 70% chance of a rate hike on Wednesday, while a majority of economists see the bank keeping rates unchanged. “Hitting 5% on the 10-year Treasury yield looks more like an inevitability here than a forecast,” said Padhraic Garvey at ING. “These are worrying times for bond markets.” —Cameron Fozi, Greg Ritchie and Matthew Burgess At what point do higher yields start to undermine the stock market rally? Around 30% of those who responded to Bloomberg’s Markets Pulse survey say 5% to 5.25% on the 10-year would be enough to set off a 10% drop in stocks, while 22% pegged the range slightly higher, at 5.25% to 5.5%. A sustained campaign by the Fed to quash inflation — as opposed to a one-off rate increase — would really threaten the bull market, historical data shows. For now, the scale of the rate cycle matters most, while the economic backdrop would help determine the extent of any weakness. —Jan-Patrick Barnert and Kerry Benn Our daily word puzzle with a plot twist.

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