US 10-Year Yield Holds at 7-Week High

The yield on the 10-year US Treasury note hovered around 4.58% on Thursday, remaining near a seven-week high as renewed conflict in the Middle East pushed oil prices higher, fueling inflation concerns and strengthening expectations for further interest rate hikes. The US military confirmed it had carried out strikes on Iran for a second straight day in an effort to curb Tehran’s ability to threaten navigation through the Strait of Hormuz, while Iran threatened a large-scale retaliatory operation against US military bases across the region. Meanwhile, minutes from the Federal Reserve’s June meeting showed that only a few policymakers favored a rate increase, though officials expressed growing concern over inflation. Markets continue to price in at least one Fed rate hike by the end of 2026. Investors are now awaiting the latest weekly jobless claims and existing home sales data for fresh guidance on the interest rate outlook.

The yield on the 10-year US Treasury note rose up to the 4.60% mark on Wednesday, the highest since May, as higher energy prices magnified the impact of a hawkish Federal Reserve. Fuel prices soared after a new wave of attacks between the US and Iran reignited concerns that energy from the Middle East will be blockaded. The pro-inflationary risks were consistent with minutes from the FOMC's June meeting, which indicated that a few policymaker saw higher core inflation readings and a robust labor market making the case for a rate hike. Rate futures continued to show a loose consensus that the Fed is due to deliver one rate hike this year, although nearly half of the market was positioned for more than one hike. Bonds were also under pressure from Fed Chairman Warsh's earlier calls for a smaller balance sheet, to be achieved by trimming the central bank's holdings of longer-term notes and bonds.

The yield on the US 10-year Treasury note went up to 4.59% on Wednesday, its highest level since mid-May, after climbing 8 basis points in the previous session. Treasury yields rose as escalating tensions in the Middle East drove oil prices sharply higher, fueling concerns that renewed inflationary pressures could require further monetary tightening. Oil prices have surged almost 10% over the past two sessions, with President Trump declaring that, "as far as I'm concerned, the ceasefire is over" while threatening additional strikes on Iran. The US also launched fresh strikes on Iran and revoked a waiver that had allowed the country to sell crude on global markets. The latest escalation followed a series of attacks on vessels transiting Hormuz, heightening fears of disruptions to global oil supplies. Meanwhile, traders increased their expectations for Federal Reserve rate hikes, with the implied probability of a September increase rising to around 70%, up from 58% the previous day.