Ten-year yields jump to 18-month high on oil spike, Fed worries

Attention is turning to the Treasury Department's next quarterly funding announcement on August 5 amid concerns officials may signal a need to increase auction sizes. Traders are watching whether the government will drop language indicating it plans to hold auction sizes steady for "at least the next several quarters." The Treasury saw soft demand for a $21 billion sale of 10-year Treasury Inflation-Protected Securities on Thursday. The debt sold at a high yield of 2.438%, 2-1/2 basis points above where they traded before the auction. Demand was below its recent average at 2.30 times the amount of debt on offer. The government also saw mediocre demand for a $13 billion sale of 20-year bonds on Wednesday. The 2-year note US2YT=RR yield, which typically moves in step with Fed interest rate expectations, rose 5.56 basis points to 4.358% and reached 4.370%, the highest since February 2025. The yield on benchmark U.S. 10-year notes US10YT=RR rose 4.02 basis points to 4.697% and got as high as 4.7135%. The yield curve between 2- and 10-year yields US2US10=TWEB flattened to 33.9 bps. The 30-year bond US30YT=RR yield rose 1.78 basis points to 5.1648% and reached 5.194%, the highest since May 20. The 30-year yields have traded above 5% for 14 consecutive days, the longest stretch since 2007, reflecting concerns about the longer-term U.S. fiscal outlook. Thirty-year real yields, which strip out expected inflation, have risen to 2.987%, the highest level since 2008. US30YTIP=RR Fed funds futures traders are pricing in a 36% chance the Fed will hike rates at its two-day meeting ending on July 29, up from 12% a week ago. At current pricing levels, a decision to leave rates unchanged would mark the second-largest gap between market expectations and Fed policy in the past decade, according to TD Securities. Should the Fed opt to hike, it would represent the largest such mispricing in that span. Market positioning is likely amplifying the move, with traders who had been holding unprofitable long positions now unwinding their debt holdings. Benchmark 10-year Treasury yields climbed on Thursday to their highest levels since January 2025 as oil prices surged, stoking fears of renewed inflation and U.S. Federal Reserve interest rate hikes. Oil prices topped $100, their highest levels in nearly two months, after Yemen's Houthis said they attacked two Saudi oil tankers in the Red Sea, causing further global supply disruptions following a near-halt in trade through the Strait of Hormuz. The renewed spike in oil prices has intensified concerns that the Fed will need to raise rates to head off mounting inflation pressures. "The move in rates reflects really two things. One is worries about inflation and a potentially more aggressively hawkish Fed, and two is expectations that growth is still quite solid," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York. Goldberg added that uncertainty over Fed policy, driven by new Fed Chair Kevin Warsh's preference against offering forward guidance, is compounding the market's move.

Ten-year yields jump to 18-month high on oil spike, Fed worries

Treasury auctions draw softer demand

Yields, curve, and long-end pressure

Traders price higher chance of a July rate hike

10-year Treasury yields rise to highest since January 2025

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