NEW YORK — The yield on the 10-year U.S. Treasury note, the global bond market's benchmark, broke above 5% in intraday trading on the 15th as oil prices continued to climb amid a widening Middle East conflict. Markets now treat as all but certain the possibility that inflationary pressure will push the U.S. Federal Reserve and the Bank of Japan to raise interest rates simultaneously this month for the first time in 20 years.
According to Bloomberg, the 10-year yield stood at 5.039% as of 5 p.m., up 7 basis points during the session. That is the highest level since July 2007. The 10-year yield also touched 5.012% intraday the previous day, topping 5% for the first time since Oct. 19, 2023, before giving back some of the gain to close at 4.961%.
It was the third time the 10-year U.S. Treasury yield has exceeded 5% intraday since 2007, just before the global financial crisis. The two-year yield, which is sensitive to monetary policy, and the 30-year yield, a reference for mortgage rates, also rose intraday on the 14th to 4.666% and 5.367%, respectively.
What drove U.S. Treasury yields higher was news that Saudi Arabia's alternative crude oil transport route had been shut down. As Brent crude and U.S. West Texas Intermediate futures jumped by around 5% to above $100 a barrel, inflation concerns spread uncontrollably.
Price indexes running well above the Fed's 2% target, the U.S. federal government's massive debt load and concerns over large-scale corporate bond issuance tied to artificial intelligence also weighed on the market.
With market rates climbing well above the 3.50%-3.75% policy rate, investors concluded that Fed Chair Kevin Warsh would find it difficult to delay a rate increase any longer. The federal funds futures market raised the probability of a 0.25 percentage point rate hike at the Federal Open Market Committee meeting on the 15th and 16th to 94.5% from 87.3% a day earlier, according to the CME FedWatch tool the same day. A rate increase would be the Fed's first in three years and two months, since July 2023.
Markets also put the odds at more than 90% that Japan will raise its policy rate at its monetary policy meeting on the 17th and 18th, following South Korea and the European Union. The last time the United States and Japan raised rates at the same time was in July 2006, 20 years ago.
