US 10-year treasury yields scale 16-year peak

US 10-year treasury yields rose on Monday, extending gains for the third straight session and hitting a 16-year high ahead of the Federal Reserve's policy meeting.

Such developments come even as markets expect the Federal Reserve to maintain interest rates unchanged this week, but markets are betting on a potential rate hike in November. 

US Yields

US 10-year treasury yields rose 1.7% to 4.415%, the highest since November 2007, with a session-low at 4.323%.

US yields rose 1% on Friday, the second profit in a row on positive US data,

The Fed

The Federal Reserve is holding its two-day policy meeting tomorrow, widely expected to end with maintaining interest rates unchanged at 5.5%, the highest in 22 years.

US Rates

Current pricing for a 0.25% Fed interest rate hike this week stands at 1%, while pricing for a 0.25% interest rate hike at the November meeting stands at 28%.

Why is the Yield Increasing?

The question arises, why have US yields hit 16-year highs given there's no chance the Fed will raise interest rates this week? 

The likely decisions are the flexibility and strength of the US economy, coupled with higher oil prices. 

US Economy

Recent US data showcase the flexibility of the world's largest economy as economic activities continue to beat estimations.

Such strong performance, coupled with increasing inflation risks as oil prices surge, could force the Federal Reserve to extend the current cycle of policy tightening. 

Global Oil Prices

Oil prices rose today for the seventh straight profit, scaling a ten-month high and on track for more gains towards $100 a barrel. 

The extensive gains came after Saudi Arabia and Russia decided to extend voluntary production cuts for three months until the end of the year, while analysts expected a single month addition.

Higher oil prices thus present inflationary pressures for global economy and could extend the current policy tightening cycle. 

The Federal Reserve has repeatedly vowed to increase interest rates again in case inflation accelerated once more.