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US Treasury yields today: Why are 10-year yields near 5.24% as oil prices rise?
US Treasury yields rise as oil prices fuel inflation fears and Fed rate hike bets, with the 10-year yield near 5.24% and markets watching 5.5%.
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US Treasury yields have climbed sharply, putting the bond market under pressure. US Treasury bonds are on track for their worst September performance since 2023, with investors closely watching rising yields and the impact of higher oil prices.
The 10-year Treasury yield was at 5.24% on Tuesday. The 10-year Treasury yield is especially important because it is used as a benchmark for mortgage rates and many other borrowing costs. Other Treasury yields are also staying high. The 30-year Treasury yield was near 5.56%, while the 2-year yield was around 4.93% on Tuesday.
US Treasury yields rise
Longer-term Treasury yields have reached multidecade highs in recent weeks. The rise has added pressure to the bond market as investors demand higher returns to hold longer-term US government debt, according to Yahoo Finance.
Oil prices push yields higher
Higher oil prices are one of the biggest reasons Treasury yields are rising. Oil prices have remained elevated, increasing concerns that inflation could stay high for longer. When investors expect higher inflation, they can demand higher yields on government bonds.
The oil market is also raising concerns about future Federal Reserve rate increases. Higher energy prices can push up the cost of fuel, transportation and other goods and services. This could make it harder for inflation to cool quickly.
Also read: Oil supply from the Middle East rises sharply: What happens to crude prices next?
Fed rate hike bets grow
Markets are now pricing in a higher chance of another Fed rate hike. Traders see about a 70% chance of an increase at the Federal Reserve's October meeting, according to CME Group's FedWatch tool. Expectations for higher interest rates can push Treasury yields higher. If investors believe the Fed will keep rates high or raise them again, they may demand higher yields on longer-term government bonds.
Why 10-year yields matter
The rise in the 10-year yield is important for consumers and businesses. The 10-year Treasury is a key benchmark for borrowing costs across the economy. A higher yield can put upward pressure on mortgage rates and other loans. Wall Street is watching the 10-year yield closely even though stocks have not suffered a major sell-off. Investors are concerned about what could happen if Treasury yields continue moving higher.
10-year yield nears 5.5%
One strategist says 5.5% could become an important level for markets. Hardika Singh, an economic strategist at Fundstrat, said historical data show that valuations start to compress after the 10-year yield reaches 5.5%, according to Yahoo Finance. A move toward 5.5% could force investors and companies to reassess their financial decisions. Singh said investors, corporations and consumers would have to “redo the math” on their investments if yields move beyond that level.
Higher yields can make stocks and other investments less attractive compared with safer government bonds. When Treasury yields rise, investors can demand higher returns from stocks and other assets to justify taking additional risk.
Treasury bonds face weak September
The bond market has already had a difficult September. Bond prices have fallen sharply this month. Treasury prices and yields move in opposite directions, meaning falling bond prices generally result in higher yields.
Also read: Gold price today: Why is gold near a 7-week low as oil prices rise?
October may not bring much relief for Treasury bonds. Historical data show that the bond market has also tended to perform poorly in October. Treasuries have recorded median losses in both September and October over the past decade. Bloomberg data show a 0.9% median loss in September and a 0.7% median loss in October over the past 10 years, according to Bloomberg data for the seasonal pattern.
The usual seasonal weakness is now happening alongside other pressures on bonds. Treasury markets are dealing with higher oil prices, inflation concerns and expectations for additional Fed rate hikes at the same time.
Yen carry trade adds pressure
There could also be another reason behind the recent rise in Treasury yields: the unwinding of the yen carry trade. This trade involves investors borrowing money cheaply in Japan and using it to invest in assets offering higher returns in other countries.
The yen carry trade can influence global bond markets. When investors borrow cheaply in Japan and buy higher-yielding assets elsewhere, it can create demand for assets such as US Treasurys. If that trade is reversed, investors may sell some of those assets.
Treasury yields outlook
Yardeni Research's Ed Yardeni linked the recent rise in yields to this possible unwinding. Yardeni said the increase in Treasury yields may be connected to investors reversing the yen carry trade. Yardeni made the observation in a note on Monday evening.
Yardeni also said the carry trade had helped governments run budget deficits without pushing bond yields higher. According to his note, cheap borrowing in Japan and investment in higher-yielding assets abroad helped support demand for government bonds, according to Yahoo Finance.
Yardeni now believes that support may be fading. He wrote that the previous setup had allowed governments to run budget deficits without putting as much upward pressure on their bond yields, but that the situation is now changing.
For investors, the key number to watch is now the 10-year yield's move toward 5.5%. With the yield already near 5.24%, rising oil prices, inflation concerns, possible Fed hikes and changes in global investment flows are keeping pressure on the Treasury market.
The bigger question for markets is whether yields keep climbing. If oil prices remain high and investors continue expecting tighter Federal Reserve policy, Treasury yields could remain under pressure, while higher borrowing costs could affect mortgages, companies and financial markets.
