US Treasury yields surged to year-to-date highs as rising tensions in the Iran conflict pushed Brent crude oil above $100 per barrel. The energy spike reignited inflation fears, leading traders to bet on potential Federal Reserve interest rate hikes. Two-year yields jumped to 4.37%, while benchmark 10-year yields reached a peak of 4.7%.
Market expectations were further heightened by Fed Chairman Kevin Warsh’s shift away from providing explicit forward guidance. Traders now price in a 35% chance of a rate hike at the upcoming July meeting, up from 10% last week. Additionally, a steady labor market with dropping jobless claims gives policymakers room to prioritize inflation control.
Investor hesitation was evident during a $21 billion auction of 10-year Inflation-Protected Securities, which saw its highest awarded yield since 2008. With persistent energy costs and steady economic growth, analysts suggest the 10-year yield could settle into a higher long-term range of 4.5% to 5.0%.