30-Year U.S. Treasury Yield Hits 22-Year High... 71% Probability of September Rate Hike

Oil Prices Surge, Inflation Fears Mount
Trump's "$5,000 Pledge" Raises Concerns
Focus Turns to FOMC Meeting on September 15-16

Despite a large-scale long-term Treasury buyback (early redemption) by the U.S. administration under President Donald Trump, the yield on the 30-year U.S. Treasury bond surged to its highest level in 22 years. The 10-year yield also approached the 5% mark for the first time since October 2023. As concerns over inflation stemming from rising military tensions between the United States and Iran have driven up yields, international oil prices climbed back above the $100 per barrel threshold. With this backdrop, the market now sees an even greater probability of a rate hike at the monetary policy meeting scheduled for next week.

On September 10 (local time), the 30-year Treasury yield closed at 5.35%, up 7.5 basis points (1bp = 0.01 percentage points) from the previous trading day, marking the highest closing level since June 2004. The 10-year Treasury yield also climbed to 4.94%, coming within striking distance of 5%. Intraday, the 10-year yield surpassed 4.95%, reaching its highest level since October 2023. The 2-year note yield, which is sensitive to policy moves, surged 12.2 basis points to 4.55%—the largest one-day gain since March, hitting a two-year high. In the bond market, prices and yields move in opposite directions.

The Wall Street Journal (WSJ) diagnosed that the months-long bond sell-off has pushed Treasury yields to a "dangerous level." Behind this was the ongoing U.S.-Iran conflict, now in its seventh month. In addition to wide-ranging economic sanctions, the U.S. has engaged in military actions against Iran. As tensions have reignited, inflation worries driven by rising oil prices are fueling higher yields. On the New York Mercantile Exchange, October-delivery West Texas Intermediate (WTI) crude settled almost 7% higher at $102.5 per barrel. This is the first time WTI has breached the $100 mark since May. On ICE Futures, November-delivery Brent crude jumped approximately 6% to $107.6 per barrel.

Inflationary pressures are expected to intensify further. According to the U.S. Department of Labor, the Producer Price Index (PPI) for August rose 0.4% from the previous month and 5.4% year-on-year. While the monthly gain was broadly in line with market expectations, it was larger than the 0.1% recorded in July. Energy prices spiked 4.2% month-on-month, and the index excluding food, energy, and trade services was up 0.3%. The WSJ assessed that the latest PPI numbers left the door open for a potential rate hike by the Federal Reserve (Fed).

President Trump's Republican National Convention is further stoking inflation concerns. At the convention in Dallas, Texas, held the previous day, he announced that if Republicans win the midterm elections, each American adult will receive a so-called "Trump Dividend" of $5,000 (about 6.7 million won). About an hour later, Vice President J.D. Vance clarified that high-income earners could be excluded from eligibility and that tariff revenues could be used as the funding source. The Associated Press noted, "With the U.S. running an annual fiscal deficit of around $1.8 trillion, this pledge could increase the deficit and fuel inflation."

However, the Trump administration maintains that the U.S. Treasury market remains robust. During an interview with conservative podcast host Steve Bannon, Treasury Secretary Scott Bessent stated that the U.S. Treasury market is "in very good shape." He pointed to strong demand at the 10-year and 30-year note auctions held on September 9 and 10 as evidence.

Secretary Bessent explained that the buyback of long-term Treasuries fell short of target because market participants were reluctant to sell their long-dated holdings. Last month, as bond yields jumped, he said current yields do not accurately reflect the U.S. economy's fundamentals and declared an intention to at least double the size of buybacks. In reality, the maximum purchase size was expanded to $600 million—three times the previous amount—but the market reacted by saying it was below expectations. The Treasury Department ultimately purchased only $520 million worth of 10- to 30-year bonds.

The market's attention is now focused on the regular Federal Open Market Committee (FOMC) meeting set for September 15-16. According to CME FedWatch, as of that day, markets were pricing in a 71.3% chance that the Fed would raise the federal funds rate by 25 basis points from the current 3.50–3.75%. This is up from 61.2% the previous day. Fed Chair Kevin Warsh has consistently stated that he prioritizes underlying inflation trends and broad price data over any single indicator.

The Consumer Price Index (CPI) for August, to be announced on September 11, is expected to provide crucial clues for the rate trajectory in September. However, Ray Remy, Vice Chairman of Daiwa Capital Markets America, told the WSJ, "The bond market is sending a very clear signal that the Fed will raise rates," adding, "The market has already made its judgment, regardless of the upcoming CPI release."

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