10-Year Treasury Yield Hits 4.97% as Oil Spikes
US long-term borrowing costs approach the 5% mark amid rising energy prices and Fed hike bets.
The 10-year US Treasury yield rose to 4.97% on Monday. This level sits just 3 basis points below the 5% threshold. The 30-year yield reached 5.35% during the same session. These figures represent the highest levels in the recent market cycle.
Brent crude oil prices climbed to $107 per barrel. This increase in energy costs stoked inflation concerns among investors. Market participants began pricing in the probability of a Federal Reserve rate hike. The upcoming policy meeting is scheduled for September 15-16.
Goldman Sachs shifts policy forecast
Goldman Sachs revised its prediction for the current week. The bank changed its outlook from no change to a rate hike. This shift followed the release of August inflation data on Friday. David Mericle, the firm's chief economist, noted that market pricing for a hike reached nearly 90%. He stated that the FOMC likely wants to avoid the negative market reaction that would follow from holding rates steady.
Polymarket bettors also adjusted their odds. They raised the probability of a September rate hike to 80%. Ed Yardeni, a veteran strategist, suggested that a rate hike could restore the Fed's credibility. He argued that this action might ease upward pressure on long-term yields.
Global bond markets face pressure
Rising yields are not limited to the United States. Ten-year yields in Australia and the United Kingdom both exceeded 5%. Yardeni noted that corporate earnings continue to climb despite these developments. He observed that neither the yield spike nor the global bond selloff has broken the bull market in stocks so far.
The move in global yields may reflect an unwinding of the yen carry trade. Investors who borrowed cheaply in Japan are now facing higher costs as Japanese rates rise. The strengthening yen makes this trade less attractive. This unwinding process contributes to the broader sell-off in bond markets, according to GN auto markets/bonds: treasury yields reports.
Debt issuance adds supply
Governments and large corporations are issuing significant debt. Funds are being raised to support spending and build AI infrastructure. This increases the supply of bonds that investors must absorb. The combination of higher supply and inflation fears drives yields higher.
