FX.co ★ US 10-Year Yield Extends Rebound

The yield on the 10-year US Treasury note climbed to 4.60% on Wednesday, its highest level since May, as rising energy prices amplified the impact of a hawkish Federal Reserve. Fuel prices surged after a new round of clashes between the US and Iran reignited fears of potential disruptions to Middle Eastern energy supplies. These inflationary risks aligned with the minutes of the FOMC’s June meeting, which showed that several policymakers viewed elevated core inflation and a still-strong labor market as justification for another rate increase. Interest rate futures continued to point to a loose consensus that the Fed will raise rates once more this year, although nearly half of market participants were positioned for more than one hike. Treasuries also faced additional pressure from Fed Chairman Warsh’s earlier remarks favoring a smaller balance sheet, to be achieved by reducing the central bank’s holdings of longer-term notes and bonds.