Treasuries-US yields climb as inflation, oil rally amp up rate-hike bets

Earlier, the European Central Bank raised interest rates for the second time this year in a widely flagged move on Thursday, hoping to tame an inflation rise driven by higher energy costs from the Iran war. The yield on benchmark U.S. 10-year notes rose 8.48 basis points to 4.922%, reaching its highest levels since November 2023. The 30-year bond yield rose 6.51 basis points to 5.3511% after touching a peak of 5.3543%, its highest level since June 2007. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 9.12 basis points to 4.518%, hitting its highest levels since July 2024. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 40.2 basis points. The August consumer price index report is due out on Friday. Yields had climbed on Wednesday after the U.S. Treasury Department said it will buy up to $6 billion in 10- to 20-year Treasury bonds during its buyback operation later on Thursday. This was triple the size of its last long-dated operation but disappointed investors who had expected a bigger buyback announcement. But yields had pared their advance on Wednesday after the Treasury Department saw very strong demand for a $39 billion sale of 10-year notes. The next big event is a government sale of $22 billion in 30-year bonds due on Thursday afternoon. After the data, traders were betting on a roughly 70% chance the Fed would raise rates by 25 basis points at its September 15 to 16 meeting, up from 62% earlier, according to LSEG's interest rate probabilities data. "Going into PPI we were driven largely by oil prices surging overnight. The PPI headline came in at consensus, but some of the components that feed into core PCE came in a little bit stronger than markets were expecting," said Molly Brooks, U.S. rates strategist at TD Securities. Brooks said that personal consumption expenditures, a measure closely watched by the Fed, could be pushed up by rising prices in segments such as airlines. Meanwhile, adding to inflation worries was a roughly 4% rally in oil prices after Iran-aligned Houthi militants seized control of Yemen's port city of Mocha on Thursday, military sources said, posing a further threat to global energy supplies hours after President Donald Trump said he expected the Iran war to end after November's midterm elections. U.S. Treasury yields climbed on Thursday after the latest inflation reading pushed up expectations for a Federal Reserve interest rate hike next week while rallying oil prices also prompted inflation worries. Yields on 10-year Treasury notes were trading at their highest levels in nearly three years while 30-year Treasury yields hit their highest levels in more than 19 years and 2-year Treasury yields reached their highest levels in more than two years. The U.S. producer price index (PPI) increased in line with expectations in August on a monthly basis amid a rebound in the cost of energy products. And in the 12 months through August, the PPI advanced 5.4% compared with consensus expectations for 5.3%. Energy prices increased 4.2% over the month after declining for two straight months and wholesale food prices edged up 0.1% after dropping 0.9% in July.

Treasuries-US yields climb as inflation, oil rally amp up rate-hike bets

ECB also raises rates

Treasury curve and auction activity

Rate-hike expectations rise after PPI and oil move

Yields climb as inflation data and oil rally boost hike bets

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