The US 10-year Treasury yield ended the third quarter at 5.29%, up 87 basis points, as rising real yields and a repricing of the Fed outlook drove its biggest quarterly increase since 1994. The TLT exchange-traded fund, which holds longer maturity Treasury bonds, fell 10% during the quarter and closed at a record low.

Real yields, which measure returns after adjusting for expected inflation, approached 3%. The rise shows that investors were demanding higher inflation-adjusted returns, not simply compensation for higher expected prices.

The 10-year yield touched 5.304% on Sept. 30, surpassing its 2007 peak to reach the highest level since May 2002. An initial bond rally after softer core PCE inflation data faded. The increase in borrowing costs also reached homebuyers, with US mortgage rates nearing 7.60%.