The US 10-year Treasury yield, a benchmark for mortgage and auto loan rates, climbed one basis point to 4.81%, its highest level since November 2023, as rising crude oil prices increased expectations that the Federal Reserve and other central banks could raise interest rates before 2026.
The 30-year Treasury yield hovered around 5.28%, near the 19-year high reached before Treasury Secretary Scott Bessent expanded a buyback program in an effort to contain long-term borrowing costs.
Investors are selling Treasuries as they demand greater compensation for inflation risks and rising government debt levels, while renewed tensions in the Middle East have added to price pressures.
The US and Iran exchanged strikes for the first time in about a month after American forces hit an island in the Strait of Hormuz, with the Islamic Republic responding by launching attacks on US military sites in Gulf nations.
Fighting between the US and Iran has intensified since the weekend after the American military reportedly struck Iranian rocket launchers on an island in the Strait of Hormuz, saying Iran was planning to use them to deploy mines into the strategically important waterway.
Iran retaliated by firing missiles at American bases in United Arab Emirates and Jordan, which were all intercepted. Tensions escalated further on Wednesday following the latest US attacks, while President Donald Trump threatened a significantly larger response should Tehran retaliate.
Oil-driven inflation concerns push investors to price in Fed rate hikes
Following the latest escalation in Middle East tensions, crude oil prices have risen to a more than six-week high, boosting expectations of a US Federal Reserve rate hike.
Traders are now pricing in a 68% chance of an interest-rate increase at the central bank’s policy meeting this month, Reuters reported, citing the CME FedWatch Tool.
The probability stood at just 34% before Federal Reserve Chair Kevin Warsh spoke about reining in inflation at Jackson Hole on Friday.
In his maiden Jackson Hole address, Warsh warned that inflation was not slowing meaningfully and reaffirmed that policymakers remained committed to returning inflation to their 2% target.
Warsh’s tough stance on price pressures has put added focus on this week’s US payrolls report, which could play a crucial role in shaping the interest-rate outlook.
September central bank meetings bring rate-hike bets into focus
The shift in expectations comes as September is shaping up to be an unusually busy month for central bank meetings, with interest-rate swap markets currently pricing in rate-hike probabilities of more than 50% for several major central banks.
According to a Bloomberg report, swaps have fully priced in a rate hike by the European Central Bank at its September 10 meeting, while indicating a 54% probability of an increase by the Reserve Bank of Australia on September 29.
Markets are also pricing in a 92% chance of the Bank of Japan raising rates on September 18 and a 98% probability of an increase by the Reserve Bank of New Zealand this week.
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