10-Year Treasury Yield Hits 4.764% as Oil Surge Fans Inflation Fears

Long-dated Treasury yields climbed to multi-year highs Monday as renewed US-Iran hostilities lifted oil prices and hardened bets on a September Fed rate hike.

The 10-year Treasury yield rose 3.8 basis points to 4.764% Monday, its highest since January 2025, as US-Iran hostilities lifted crude and hardened bets on a September Fed rate hike to 64 percent.

"Crude being back up complicates the inflation picture, especially if that's sustained," JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago, said. "There's still a lot of uncertainty about what Fed policy will actually be and what they'll do in September and beyond."

The 30-year yield rose 5.8 basis points to 5.266%, its highest since August 21, while the 10-year German Bund yield touched 3.313%, a level unseen since 2011. US crude climbed 3.38 percent to $86.24 a barrel and Brent reached $91.20, up 3.52 percent. The Dow Jones Industrial Average fell 356.59 points, or 0.67 percent, to 53,203.40, and the S&P 500 dropped 0.49 percent to 7,674.22.

The moves followed Fed Chair Kevin Warsh's hawkish Jackson Hole speech Friday, when he said the central bank would "have work to do" if policymakers were not confident inflation was returning to its 2 percent target. Money markets now price a 64 percent probability of a 25-basis-point hike at the Sept. 16 meeting, up from 35 percent before Warsh spoke. Friday's August payrolls report and Sept. 11 CPI data will determine whether the Fed moves next month.

Oil Surge Complicates the Inflation Picture

The escalation began Sunday when US forces struck two Iranian launchers on Larak Island, the first known American strikes on Iran since late July, a US official said. Iran responded by attacking US forces in Jordan, according to a Fox News reporter citing a US source, though President Masoud Pezeshkian said Monday that Iran still seeks a negotiated solution. The exchange was limited, but it marks the first US strike on Iran's forces in more than a month and highlights the risk of renewed escalation, Sofie Liv Petry, assistant analyst at Danske Bank, said in a note.

Persistently high crude prices since the war with Iran began have fanned inflation worries, complicating the Fed's path. The fed funds rate has been held unchanged at both the June and July meetings, leaving uncertainty over the timing of a potential move. The last time the 10-year yield traded near these levels was January 2025, before the Fed's most recent easing cycle took hold.

Warsh's Hawkish Tone Reshapes Rate Expectations

Yields jumped Friday after Warsh said the Fed would "have work to do" if policymakers were not confident inflation was returning to its 2 percent target. "While Warsh did not send clear signals on the timing of rate changes, the speech was supportive of market expectations of a rate hike during the fall—whether in September or by year-end," Elisabet Kopelman, US economist and Fed watcher at SEB, said in a note.

The two-year yield, which moves in step with rate expectations, fell 0.6 basis point to 4.344%, while the closely watched gap between two- and 10-year yields stood at a positive 41.8 basis points. The dollar index slipped 0.21 percent to 99.43, and spot gold fell 0.45 percent to $4,432.84 an ounce. Treasury Secretary Scott Bessent told G20 finance leaders that the only way out of debt was to grow, while Warsh said a global investment surge is helping to power growth.

If the 10-year yield approaches 5 percent, US equities could face deeper pullback pressure, with September historically a tough month for stocks. Economists expect August payrolls to increase by 58,000 after July's decline of 23,000, with unemployment holding at 4.1 percent. A significantly weaker outcome would likely be needed to materially reduce expectations of a September hike.

This article is for informational purposes only and does not constitute investment advice.