Oil Tops $100 as Bond Yields Hit Multi-Year Highs

Brent crude rose 6% on Thursday to nearly $108 per barrel. The price remained above the $100 threshold on Friday. This level marks a significant shift in global energy markets. Investors are pricing in a prolonged conflict in the Middle East. The uncertainty has spread directly to fixed-income markets.

The yield on 10-year U.S. Treasury bonds surpassed 4.9%. This is the highest level since 2023. The 30-year bond yield rose above 5.38%. This figure represents an almost two-year high. The 2-year bond yield approached 4.6%. These moves reflect heightened inflation risks.

Energy Supply Disruptions Persist

The United States reported destroying five Iranian oil tankers. Iran retaliated by striking a military base in Jordan. Iranian forces also attacked ten vessels near the Strait of Hormuz. Two of these were American ships. Houthi militants advanced along the Red Sea coast. They seized the port city of Mocha.

The Bab el-Mandeb Strait is now at risk. This is a key route for Saudi oil exports. The effective closure of the Strait of Hormuz in February shifted traffic. Traders lack a common assessment of supply disruptions. This uncertainty embeds a risk premium in oil prices. The premium may remain for months or years.

Inflation Data Drives Rates

Federal funds rate futures show a 65% probability of a hike. The expected increase is 0.25 percentage points. August consumer inflation data will be decisive. Economists forecast headline inflation to rise 0.4% monthly. Core inflation is expected to rise 0.2% monthly.

Year-on-year headline inflation is forecast at 3.4%. Core inflation is projected at 2.4%. Producer prices rose in August as expected. The European Central Bank raised its key rate to 2.50%. It increased from 2.25% to contain energy-driven inflation. It is unclear if this is a one-off move.

Market Sentiment Shifts Rapidly

Expectations for a swift conflict end faded in September. The U.S. stated the war could last until November. This timeline increased sensitivity to energy supply risks. The initial optimism from a summer memorandum vanished. Market participants now focus on long-term confrontation scenarios.

Investors were disappointed by U.S. Treasury Secretary Scott Bessent’s plan. The bond buyback size was limited. It fell short of market expectations. This limited action failed to anchor long-term yields. The combination of energy shocks and policy uncertainty defines the current environment. Data from GN auto markets/bonds confirms the yield spike.