The yield on the US 10-year Treasury note climbed above 4.7% on Tuesday, approaching its highest level since January, as a sharp rise in oil prices reinforced expectations that the Federal Reserve may raise interest rates. The move came against a backdrop of persistent uncertainty surrounding US–Iran efforts to secure an agreement to end the war and reopen the Strait of Hormuz.
After Tehran demanded financial compensation for damage sustained during the conflict, former President Trump said he had instructed US representatives to insist on compensation from Iran in any future talks, further complicating the diplomatic landscape.
At the same time, investors were awaiting key US inflation data due this week for further clues on the monetary policy outlook. Markets are now assigning roughly a 51% probability to a 25 basis point Fed rate increase in September, up from 44% just a day earlier. Cleveland Fed President Beth Hammack indicated that multiple rate hikes could be required to return inflation to the central bank’s 2% target.
