The bond market keeps turning back the clock.

Relentless selling pressure pushed the yield on the 10-year U.S. Treasury note above 5.3% Wednesday-blowing past its 2007 peak to reach its highest level since 2002, according to Tradeweb.

The milestone is particularly notable because it hints that U.S. borrowing conditions haven't just returned to a pre-2008-2009 financial crisis normalcy, as some investors have recently suggested. Instead, something even bigger might be afoot.

When Treasury yields last were this high, the U.S. economy was in an entirely different era. The dot.com stock bubble had largely deflated, but investors still had memories of the robust economic growth and consistently high interest rates of the 1990s-and even the sky-high inflation of the early 1980s.

As yields fell in subsequent years, many economists concluded the world had entered a new epoch of tepid inflation and permanently low interest rates. Those views were challenged by the Covid inflation surge earlier this decade. But they have now been completely cast aside, replaced by new forecasts of an extended period of elevated borrowing costs.

Bonds could be volatile in the near-term, but "the trend in yields is upward," said Blerina Uruçi, chief U.S. economist at T. Rowe Price. "There are many factors driving yields higher that are structural, and those factors are here to stay."

Though unexpected events such as Covid and wars have helped drive yields to current levels, investors and economists also point to more durable forces as well. Those include a growing tide of government debt testing the limits of investor demand, the artificial-intelligence investment boom that is powering economic growth, and rising trade barriers that are pushing up inflation.

Investors and economists care about the 10-year Treasury yield because it plays a critical role in setting borrowing costs across the country. As the yield has climbed in recent months, so too has the cost of getting a mortgage for families, and of issuing bonds for large U.S. companies.

That increase has been painful for many potential borrowers, and a frustration for Republicans ahead of the November midterms. But it notably hasn't done much to slow the overall economy-the resilience of which has only pushed yields upward, as investors wager that the Federal Reserve will need to keep raising interest rates to tame inflation.

Large structural forces aside, the focus of most bond investors remains the U.S. conflict with Iran. The 10-year yield had reached a recent low point below 4% on Feb. 27, just before the U.S. and Israel started the conflict, spurring a surge in energy prices as Iran moved to throttle shipping in the Strait of Hormuz. It ended Wednesday at 5.292% after rising as high as 5.306% earlier in the session.

U.S. Navy and Gulf oil producers have recently improved at fending off or evading Iranian attacks, allowing more tankers to cross the strait. Nonetheless, Brent crude, the international oil benchmark, has remained near $100 a barrel, diesel prices recently hit record highs and investors remain nervous that the flow of oil could deteriorate again as long as the two sides haven't reached a definitive peace agreement.

"We see traffic increasing. That's nice," said John Briggs, head of U.S. rates strategy at Natixis Corporate & Investment Banking. But, he added, "just because supply is moving out now doesn't mean that it's going to continue."

A central bank shouldn't necessarily raise interest rates in response to inflation caused by an energy shock, according to textbook economic theory. Higher rates can't increase the supply of oil, and the shock could always end on its own. That theory, however, is holding less weight now because inflation has been above the Fed's 2% target for years, stirring concerns that it could become entrenched in the economy. In addition, economists say factors other than the war, such as AI investment, are also fueling consumer price increases.

Under Chairman Kevin Warsh, the Fed's rate-setting committee already voted unanimously to raise rates earlier this month. Now, investors are expecting several more hikes over the next 12 months, based in part on concerns that businesses will start passing the cost of rising fuel prices onto consumers, feeding more broadly into inflation.

On Tuesday, yields on short-term Treasury yields-which are particularly sensitive to the near-term outlook for Fed policy-fell modestly after New York Fed President John Williams said there was currently no "urgency" to raise rates again.

Still, yields on longer-term Treasurys barely changed, and they quickly resumed their climb on Wednesday.

To some analysts, moves like that suggest that the market is dictating interest rates now, even more than the Fed. As long as investors remain concerned about the inflation outlook, yields could rise no matter what Fed officials say. In fact, the Fed could be pushed to raise rates to calm the market and prevent longer-term yields from rising too quickly.

So far, stocks have largely withstood the rise in bond yields, largely thanks to the strong corporate earnings.

Some, though, worry that stocks are vulnerable because Warsh has said that overall financial conditions aren't "restrictive," suggesting that the lofty market could itself be fostering inflation by boosting the wealth of investors and giving companies relatively easy access to financing.

If Fed officials "really want to get inflation down to two, they may have to get restrictive, which the stock market wouldn't like," said Bob Doll, chief investment officer at Crossmark Global Investments.