30-Year U.S. Treasury Yield Hits 5.35%... Soars to 19-Year High as Oil Prices Surge

International Oil Prices Surge Over 4%... Inflation Concerns Mount
70% Probability of Fed Rate Hike Next Week
10-Year Yield Nears 5%
Attention Focused on $600 Million Buyback

With international oil prices surging and fears of inflation spreading, yields on U.S. long-term government bonds have soared to their highest levels since 2007. The market is now pricing in about a 70% probability that the Federal Reserve (Fed) could raise its benchmark interest rate as early as next week.

According to Bloomberg and The Wall Street Journal (WSJ) on September 10 (local time), the yield on the 30-year U.S. Treasury bond rose to as high as 5.35% during the session. This marks the highest level since 2007. Bond yields and prices move in opposite directions.

The 10-year Treasury yield climbed up to 4.91% intraday, reaching its highest point since October 2023. The yield on the 2-year bond, which is sensitive to monetary policy, surpassed 4.5% for the first time since 2024. Yields across various maturities rose simultaneously by 6 to 8 basis points (1 basis point = 0.01 percentage points) on the day.

The main driver behind the higher Treasury yields has been the surge in international oil prices. Major crude benchmarks jumped by over 4% that day, reaching their highest level since May. Concerns are mounting that oil supply disruptions in the Middle East could persist, pushing prices back toward highs seen after the U.S. attack on Iran.

Amid concerns that the rise in energy prices could spread throughout the broader inflation picture, the market has rapidly increased its expectations for a Fed rate hike. In the interest rate futures market, the probability that the Fed will raise rates at the upcoming Federal Open Market Committee (FOMC) meeting on September 16 has been priced at about 70%. The likelihood of at least one rate hike by October is now fully reflected in market prices. Previously, a December hike was considered more likely.

Although the U.S. Producer Price Index (PPI) released that day was generally in line with market expectations, it failed to reverse the sell-off in the bond market. Market attention is now focused on the Consumer Price Index (CPI) to be released on September 11. If the CPI comes in higher than forecast, expectations for a rate hike next week could strengthen further.

Global bond markets also weakened across the board. The yield on the UK 2-year government bond jumped by more than 10 basis points. The European Central Bank (ECB) raised its deposit rate by 0.25 percentage points to 2.5% and warned that inflation would remain well above target for an extended period. This is the ECB’s second rate hike since the outbreak of war with Iran.

The U.S. Treasury market—the 30-year bond auction and long-term bond buybacks scheduled for later in the afternoon—has also drawn close attention. At 1:00 p.m. New York time, the U.S. Treasury will auction $22 billion in 30-year bonds. The expected auction yield is about 5.35%, and if the yield is set at this level, it would be the highest 30-year auction yield since 2001.

An hour later, the Treasury will conduct a buyback of up to $600 million of bonds with remaining maturities of 10 to 20 years. To improve liquidity in the long-term bond market, the Treasury has tripled its buyback cap from the previous $200 million.

However, there are concerns that a buyback alone will not be sufficient to restrain the sharp rise in yields, given that the surge in international oil prices and expectations of a Fed rate hike are spurring bond selling. The WSJ reported that the 10-year yield is once again approaching the 5% mark. The market is expected to gauge investor sentiment toward long-term Treasuries based on demand in the 30-year auction and the results of the actual buyback that day.

This content was produced with the assistance of AI translation services.