(Bloomberg) -- Blue-chip bond yields have surged to the highest level since 2009 as Federal Reserve members continue to point toward an additional interest rate hike this year and a higher-for-longer regime.

The average US investment-grade yield-to-worst stood at 6.15% on Monday, surpassing last year’s high of 6.13%. Among the factors driving the rise in yields are “concerns around the fiscal picture,” according to Winnie Cisar, global head of strategy at CreditSights Inc., referring to the swelling federal budget deficit. 

Also pushing yields higher are “expectations that the Fed is on hold at higher policy rates for an extended period,” as well as “the dollar strength, which makes buying US fixed income less attractive on an FX hedged basis for a lot of non-US investors,” Cisar said.

At the same time, spreads for high-grade borrowers have widened 11 basis points since hitting a 2023 low of 112 basis points at the end of July. Partly contributing to the widening is the ongoing selloff in the rates market — driven by persistent inflation — which saw US Treasury yields soar to the highest levels in more than a decade. At least two potential issuers called off sales in the high-grade market Tuesday amid the volatility, extending the uncertainty seen last week as deals face higher attrition rates and lower book orders.

A hawkish pause from the Fed in September is also helping push credit risk premiums higher, as investors are betting that the central bank will hold interest rates above 5% for longer than anticipated and may be looking at a further rate hike this year — placing a greater burden on corporate borrowers’ bottom lines. 

Read More: Fed’s Mester Says One More Rate Hike May Be Needed This Year

Meanwhile, year-to-date total returns for US high-grade corporate debt are down 0.75%, according to Bloomberg index data. Returns on AAA rated debt, the highest tier of investment-grade and also the most sensitive to rates, are down 1.07% for the year.

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