10-year US Treasury yield nears 5% for first time in three years

The yield on the 10-year US Treasury note rose on Thursday, extending gains for a fourth consecutive session and reaching a fresh three-year high, moving closer to the 5% threshold for the first time since October 2023.

The latest move in the US bond market comes amid a sharp surge in global oil prices, which is likely to increase inflationary pressures facing Federal Reserve policymakers.

US government data showed that annual producer price inflation rose more than expected in August, strengthening expectations for a US interest rate hike in September.

US Treasury yields

The yield on the 10-year US Treasury note jumped around 1.75% to 4.930%, its highest level since November 2023, from an opening level of 4.847%, after recording a session low of 4.827%.

The yield rose 1.1% on Wednesday, marking a third consecutive daily gain, amid escalating military tensions between the United States and Iran.

Global oil prices

Oil prices surged more than 5.0% on Thursday, extending gains for a fourth consecutive day and reaching their highest levels in four months, with US crude breaking above $100 a barrel for the first time since May.

The sharp rise in oil prices comes after the United States and Iran exchanged attacks on oil tankers in the Strait of Hormuz and the Persian Gulf, while some Saudi oil facilities were targeted by the Houthis.

US producer prices

The annual US Producer Price Index rose 5.4% in August, exceeding market expectations for a 5.3% increase, after rising 4.8% in July.

US interest rates

• Following the above price moves and economic data, according to CME’s FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its September meeting fell from 40% to 30%, while the probability of a 25-basis-point rate hike increased from 60% to 70%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting fell from 14% to 8%, while the probability of a 25-basis-point rate hike rose from 86% to 92%.

• Investors are awaiting US consumer price data on Friday to reassess those expectations.