The most important number in the economy has climbed to its highest level since 2007, and Wall Street cannot decide whether that is a good thing or a bad thing.

That number is the 10-year Treasury yield—the interest rate the U.S. government pays to borrow money for a decade, and the benchmark on which almost every other loan in the country is predicated. It hit 5.21% on Friday, and the average 30-year mortgage rate jumped to 7.45% alongside it; car loans, credit cards, and business borrowing are set to follow.

The move came after the Federal Reserve raised interest rates last week, its first hike since 2023, in an effort to cool the economy. Markets currently assign roughly 70% odds to another hike in October. Bonds have kept selling off, and Wednesday's auction of five-year Treasuries drew the weakest demand since 2018. That weak auction is more than a technical footnote: how much demand each new Treasury sale attracts is one of the clearest real-time readings of investors' appetite for U.S. debt—the very question that divides the boom and bust camps below.

Whether any of this amounts to a problem depends on why yields are rising. Broadly, there are two possible explanations: the economy is booming, or investors are losing their appetite for U.S. debt. Economists are divided on which one applies here.

What is a bond, anyway?

It helps to return to the basics of bond dynamics. A bond is an IOU: when you buy a Treasury, you lend the government money, and it pays you interest on that loan. That interest rate is the bond yield.

The yield moves with demand. When fewer investors want to lend, the government has to offer a higher rate to find buyers. And because lenders price mortgages, auto loans, and similar products off the government's rate, everyone's borrowing costs rise in tandem.

Stocks feel the effect too. If a risk-free government bond can pay 5%, investors may demand a better reason to own riskier equities—and may pay less for them.

Yields on 10- or 30-year bonds also price in what investors expect the Federal Reserve to do over the long term. If you believe the Fed will hold rates at around 4% for years, you will not lend to the government for a decade at anything less, because you might as well buy short-term bonds and keep rolling them over.

Long-term yields additionally incorporate the "term premium"—the extra pay investors demand for tying up their money for that long. A lot can go wrong in a decade: a war could break out, inflation could spike, the deficit could balloon, or another pandemic could sweep through the economy.

The distinction is what matters. If yields are up because investors expect the Fed to keep rates high, it usually means they expect the economy to remain strong, with robust profits and investment, so the Fed will not have to incentivize further growth through cuts. Strong economies mean strong profits—which is when stocks can handle rising yields. But if yields are up because the term premium is rising, investors are not feeling confident about U.S. growth; they are demanding more pay to hold U.S. debt, just in case of some risk.

So which is it now? It depends on whom you ask.

The case for boom

The optimists say yields are rising because the economy is strong and generating real growth, much of it driven by AI. The largest hyperscalers are on track to devote nearly $800 billion to capital expenditures this year and more than $1.1 trillion in 2027, according to Goldman Sachs—the biggest tech investment cycle relative to GDP since the beginning of the railroad industry.

A booming economy pushes up prices, so the Fed rates to keep inflation in check, and investors expect it to keep them there for a while.

Matthew Klein, an economics commentator and author of The Overshoot newsletter, agrees that the Fed is starting to hike for the right reason: the economy has been running hot for years, and the central bank is finally getting around to being upbeat on growth and jobs.

Similarly, analysts at Jefferies say the market is "underestimating U.S. equities' ability to absorb longer-term rates," pointing to strong, broad earnings growth.

The case for bust

The pessimists, by contrast, worry that the term premium is starting to climb amid risks the Fed cannot control.

Start with the debt. Washington is making no effort to rein in the deficit, wrote Thierry Wizman of Macquarie Group, and the war with Iran, now approaching its eighth month, is making it bigger. Every single dollar of that deficit means more Treasuries for investors to absorb, testing the limits of demand in the bond market.

On top of that, AI spending now exceeds the hyperscalers' available source of cash, so they are issuing bonds that compete with Treasuries for investors' money—in an economy where Americans do not save that much.

Without a break in AI spending or the Iran war, Wizman wrote, yields "will stay lofty."

Whichever explanation wins out, the evidence will keep arriving on a public schedule: the Fed's October decision will update the rate expectations embedded in long-term yields, and every new Treasury sale will show how much supply investors are still willing to absorb.

This story was originally featured on Fortune.com.