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 concerns over inflation spreading due to a sharp rise in international oil prices, long-term U.S. Treasury yields have soared to their highest levels since 2007. The market has priced in about a 70% chance that the Federal Reserve (Fed) will 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 30-year U.S. Treasury bonds rose as high as 5.35% during intraday trading. This is the highest level since 2007. Bond yields and prices move in opposite directions.

The 10-year Treasury yield climbed to 4.91% during the session, reaching its highest point since October 2023. The 2-year yield, which is sensitive to monetary policy, exceeded 4.5% for the first time since 2024. Across all maturities, Treasury yields rose by 6–8 basis points (1bp=0.01 percentage point) on this day.

The main factor driving up Treasury yields has been the surge in international oil prices. Leading crude benchmarks rose by more than 4% that day, hitting their highest levels since May. As concerns grow that disruptions to oil supply in the Middle East could persist, prices are once again approaching the peak recorded after the U.S. attack on Iran.

Amid worries that rising energy prices could spread across broader inflation, the market rapidly increased the expected likelihood of a Fed rate hike. The interest rate futures market reflected about a 70% chance of a Fed rate increase at the upcoming Federal Open Market Committee (FOMC) meeting on the 16th. The possibility of at least one rate hike by October is now fully priced in. Previously, a December increase was considered more likely.

The U.S. Producer Price Index (PPI) released that day was generally in line with market expectations but failed to reverse the selling pressure in the bond market. Market attention is now focused on the Consumer Price Index (CPI), which will be released on September 11. If the CPI comes in higher than expected, expectations for a rate hike next week could strengthen further.

Global bond markets also showed widespread weakness. The yield on the U.K. 2-year gilt jumped by more than 10 basis points. On the same day, the European Central Bank (ECB) raised its deposit rate by 0.25 percentage points to 2.5% per annum, warning that inflation would significantly exceed its target for an extended period. This is the second time the ECB has raised rates since the outbreak of the Iran war.

The U.S. Treasury market is highly attentive to the 30-year bond auction and long-term buyback scheduled for later in the afternoon. At 1 p.m. New York time, the Treasury Department will auction 22 billion dollars' worth of 30-year bonds. The anticipated auction yield is about 5.35%; if the actual yield is set at this level, it will mark the highest 30-year auction yield since 2001.

One hour later, the Treasury will conduct a buyback for up to 600 million dollars of bonds with 10 to 20 years remaining maturity. The Treasury Department has tripled the buyback cap from 200 million dollars to improve long-term market liquidity.

However, there are concerns that rising oil prices and expectations of a Fed rate hike are fueling the selloff in Treasuries, making it difficult for buybacks alone to curb the surge in yields. The WSJ reported that the 5% yield level for the 10-year note is again within sight. The market is expected to gauge investor sentiment for long-term Treasuries based on the outcome of the 30-year auction and the actual participation in the buyback that day.

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