10-year US Treasury yield hits three-year high: What are the reasons?

The yield on the 10-year US Treasury note rose on Wednesday, extending gains for a sixth consecutive session and reaching its highest level in three years, with most experts and analysts expecting further increases toward the 5% threshold.

The rise comes following Federal Reserve Chair Kevin Warsh’s hawkish stance at Jackson Hole, alongside higher global oil prices and renewed inflation concerns.

Those developments have strengthened expectations that the Federal Reserve will raise interest rates when it meets later this month.

US Treasury yields

The yield on the 10-year US Treasury note rose 0.4% to 4.812%, its highest level since November 2023, from an opening level of 4.796%, after recording a session low of 4.794%.

The yield gained 0.9% on Tuesday, marking a fifth consecutive daily increase, amid renewed military tensions between the United States and Iran.

Kevin Warsh

Federal Reserve Chair Kevin Warsh said at the Jackson Hole symposium last Friday that the US central bank would have “a lot of work” ahead if policymakers do not gain sufficient confidence that inflation is moving quickly toward the 2% target.

Warsh added that the Federal Reserve’s 2% PCE inflation target is unwavering and that it is the Fed’s duty to achieve price stability.

Global oil prices

Oil prices rose more than 1% on Wednesday, extending gains for a third consecutive session and reaching six-week highs amid concerns over oil flows through the Strait of Hormuz.

Latest developments in the Iran war

• Developments have become increasingly serious, with the Iran war seeing an exchange of military strikes between the United States and Iran.

• The US military launched a new wave of strikes on Iran, targeting Islamic Revolutionary Guard Corps positions, air-defense facilities, radar sites and naval assets linked to threats against shipping in the Strait of Hormuz.

• Iran responded with missile and drone attacks on US positions across the region, including bases in Jordan, Bahrain and Kuwait, with Jordan saying it intercepted most of the missiles.

• Tehran threatened to tighten restrictions on shipping through the Strait of Hormuz, while field reports indicate that vessel traffic has fallen sharply.

• Only five vessels crossed the strait on Monday, according to preliminary Kpler data, with no large oil or liquefied natural gas tankers detected.

• US President Donald Trump said the United States is not forcing Iran to negotiate following the latest round of military strikes.

• The Islamic Revolutionary Guard Corps warned the United States of “consequences” for the latest attacks, while Iran’s Supreme Leader said Tehran would respond to Washington.

US interest rates

• Following the developments above, according to CME’s FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its September meeting fell from 66% to 30%, while the probability of a 25-basis-point rate hike rose from 34% to 70%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting fell from 26% to 9%, while the probability of a 25-basis-point rate hike increased from 74% to 91%.

• A series of highly important US labor market reports are due this week. US private-sector employment data for August will be released later today, followed by weekly jobless claims on Thursday and the August employment report on Friday.