SINGAPORE (Sept 1): US Treasury yields rose to their highest since January 2025 on Tuesday as renewed attacks between the United States and Iran lifted oil prices, stoking inflationary worries and triggering a global bond selloff.
Tehran launched missiles at two US air bases in Jordan in response to a US attack on its Larak Island, where Washington said it had struck Iranian launchers firing mines into the Strait of Hormuz.
The yield on 10-year Treasury notes was two basis points higher at 4.778%, a 19-month high. The yield on the 30-year bond touched 5.27% in Asian hours, not far from the 19 year high touched last month.
The six-month-long US-Iran conflict has recently been fought through sanctions, blockades and economic pressure, but the fresh attacks underscored the tenuous nature of the war in the Middle East. Brent crude futures rose to over US$91 per barrel.
The bond selloff also spread to Japan and Europe, with Japan's benchmark 10-year government bond yield rising to a 30-year peak ahead of a closely watched auction of the Japanese notes later in the day.
Germany's bund futures slipped to their lowest since 2011, while French OAT futures fell to a record low in Asian hours. German and French long-dated government bond yields were at their highest in more than 15 years on Monday.
Rising oil prices have fanned expectations of inflationary pressures for much of the year, upending the rates outlook, with comments from Federal Reserve chairman Kevin Warsh last week underscoring the challenge facing policymakers.
The US central bank will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2%, Warsh said on Friday, coming closer than he has to acknowledging rate hikes may be needed to ease price pressures.
Markets are pricing in 66% chance of a Fed rate hike later this month, compared with 41% a week earlier, the CME FedWatch tool showed. Traders are also pricing higher odds of a rate hike from the European Central Bank and the Bank of Japan this month.
"While Warsh did not provide forward guidance and the decision remains data-dependent, the balance of risks after Warsh clarified his reaction function has shifted in a hawkish direction," said Blerina Uruci, chief US economist at T Rowe Price.
"My new forecast is for a 50/50 chance of a hike in September."
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