The yield on the US 10-year Treasury note rose for a third consecutive session to 5.14%, its highest level since July 2007, while the 30-year yield climbed above 5.44%, the highest since 2004. Borrowing costs have moved higher as oil prices increased amid heightened tensions between the US and Iran, and as talks on the sidelines of the UN General Assembly made little headway toward resolving the conflict.
Higher energy prices are expected to add further upward pressure on inflation, especially as US diesel prices reached a new record high. In this environment, traders have increased their bets on additional Federal Reserve tightening this year. Markets are now pricing in nearly a 75% probability of a 25 bps rate hike in October and more than a 58% chance of another move of the same size in December. Recent remarks from several Fed officials have also been interpreted as hawkish.
Adding to the pressure on the bond market, the September S&P Global PMI signaled ongoing strength in US economic activity.
