The yield on the 10-year US Treasury note climbed above 4.8% on Wednesday, its highest level since October 2023, as rising energy prices strengthened expectations of further Federal Reserve rate hikes this year. The US was reported to have struck multiple Iranian tankers, while Iranian forces continued their attacks on US positions in the Middle East, intensifying the conflict and extending the likely disruption of fuel supplies from the region. Higher fuel costs have already begun to feed through to core inflation measures.
This combination prompted several FOMC members to argue for additional interest rate increases to counter mounting inflation risks. Chairman Warsh stated that another rate hike would be justified if inflation continues to rise. At the same time, estimates that AI firms have raised $1.5 trillion in debt so far this year have constrained primary dealers’ capacity to absorb new government securities, adding further upward pressure on yields. US Treasuries sold off across the curve, despite Secretary Bessent’s warning against shorting bonds ahead of his anticipated buyback announcement.
