The U.S. Treasury yield hit a new multi-decade high as a spike in oil prices raised fresh fears about inflation in the run-up to the Federal Reserve’s September meeting, according to Tradeweb data cited by the Wall Street Journal.
The 10-year yield climbed as high as 5.012% during Monday’s session, its highest intraday level since 2007, before retreating back below the 5% threshold.
However, Treasury data were lower than the wide 10-year par yield of the daily yield curve of the Treasury Department, 4.97% on September 14, 4.96% on September 11, and 4.79% at the start of September. Bond prices later recovered after the morning selloff, with Tradeweb data showing the yield near 4.96% at the close of trading.
Longer maturities also came under pressure. The Treasury’s September 14 data showed a yield of 5.37% on its 20-year bond and 5.34% on its 30-year. This was even after it was at 5.27% on 1 September.
Rising government bond yields have challenged risk assets, including crypto assets, as global investors weigh the appeal of volatile assets against higher-yielding debt.
Oil was one of the major movers in the bond market on Monday, with Brent crude rising as much as 5% to about $109.80 in early trading and then falling back to a close of $105.68 a barrel, with supply issues arising from attacks on Saudi Arabia’s East-West pipeline. The pipeline also bypasses the Strait of Hormuz and has the capacity to move about 4 million bpd, or about 4 percent of global supply.
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The effect was further prolonging Tuesday’s spike in energy market prices, with the price of Brent futures rising to $106.93 a barrel and West Texas Intermediate rising to $102.65.
Renewed Houthi attacks on Saudi Arabia and stalled diplomatic talks between Gulf Arab states and Iran kept supply risks on the market’s mind. Traders will also be watching to see whether the higher crude prices will spill into inflation and Fed rate expectations.
U.S. stocks ended in the red on Monday with the Nasdaq Composite declining 0.56%. The S&P 500 and Dow Jones Industrial Average also posted losses of 0.48% and 0.29%, respectively. The Philadelphia Semiconductor Index closed down 5.9% as well, amid different concerns regarding different issues around the development of advanced AI and its future spending.
Higher oil prices, high Treasury yields and a general softening of risk appetite also supported the dollar. For the crypto markets, that’s another macroeconomic factor on the table ahead of the Fed decision. Bitcoin was trading near the upper-$70,000 range as investors watched rates, yields on bonds and spot demand.
Heading into its Sept. 15-16 meeting, the target for the federal funds rate was set at a range of 3.50% to 3.75%. According to Reuters, CME FedWatch pricing indicated a 93% probability of a 25 basis point increase — a range of 3.75% to 4.00%. This probability reflects market participants’ expectations, not a commitment by policymakers.
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The Fed will release its policy statement at 2 p.m. ET on September 16, followed by a press conference at 2:30 p.m. ET and the release of an updated Summary of Economic Projections, which provides further information to markets about Fed policymakers’ expectations for inflation, economic growth, and interest rates going forward.
