US 10-year Treasury bond yields climbed on Tuesday to its highest level since July 2007 as investors strongly anticipate a hike in the Federal Reserve interest rates tomorrow. Rising oil prices are adding to inflation concerns while markets are now preparing for what could be the first in a series of rate hikes, Reuters reported.
The 10-year Treasury yield rose 4.7 basis points to 5.008% after reaching 5.041%, its highest since July 19, 2007. It was on track for its sixth gain in seven sessions. The 30-year Treasury yield also climbed 4.5 basis points to 5.373% after touching 5.401%, its highest since June 13, 2007.
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Oil surge adds to inflation pressure
The latest rise in bond yields comes as crude prices rose about 2%, with supply concerns mounting after attacks on Saudi Arabian energy infrastructure left the kingdom’s East-West Pipeline offline. Libya’s warning that it may declare force majeure after protests disrupted oil production added to the pressure.
Higher energy prices are strengthening expectations that central banks will need to keep rates higher for longer to contain inflation. Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania, told Reuters the market has yet to see a catalyst that could reverse the recent momentum in yields.
“Any inflation data that we’ve had, any news out of events that are happening overseas for the geopolitical concerns, anything that’s budget-related outside the U.S. or in the U.S., everything keeps pointing in the same direction, there’s been no relief at all,” Barnes said.
“It’s all basically the same type of story, a story that pushes yields up, there’s been no catalyst to reverse the current momentum that we’ve seen in bond yields.”
Fed rate hike bets surge ahead of decision
Markets are now pricing in a 92.7% chance of at least a 25-basis-point rate hike at the Fed’s policy announcement on Wednesday, according to CME FedWatch. That compares with 59.4% a week ago and 33.1% a month earlier, highlighting how quickly expectations have shifted, according to the Reuters report.
The two-year Treasury yield, which is closely tied to expectations for Fed policy, rose 2.7 basis points to 4.661% after touching 4.688%, its highest since July 5, 2024. Markets are pricing in nearly 100 basis points of hikes over the next 12 months.
The prospect of higher rates also creates a challenge for new Fed Chairman Kevin Warsh, whom President Donald Trump selected with an expectation that he would cut rates. Bank of America economist Aditya Bhave expects 75 basis points of hikes this year, while Morgan Stanley’s Michael Gapen expects two 25-basis-point increases, in September and December.
Meanwhile, the Treasury is set to auction $13 billion of 20-year bonds on Tuesday, adding fresh supply to a market already facing upward pressure on yields. The 10-year inflation breakeven rate stood at 2.377%, suggesting investors expect inflation to average about 2.4% annually over the next decade.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)