U.S. Treasury yields rise with oil prices
TLT•U.S. Treasury yields rose as oil prices gained about 2% after President Donald Trump rejected an Iranian proposal, while traders raised the probability of an October Fed rate hike to 68% from 64%. The 30-year yield reached its highest level since mid-May 2004 before paring gains.
1. Yields climb
Treasury yields rose on Monday as oil prices rallied after Trump rejected Iran’s proposal to reopen the Strait of Hormuz and end fighting in the Middle East. The 30-year yield reached its highest level since mid-May 2004, and the 10-year yield touched its highest since mid-June 2007 before both pared gains.
2. Rate expectations
Traders raised the probability of a 25-basis-point Fed rate hike in October to 68% from 64% on Friday and increased bets on another hike in December. The 10-year yield was up 4.04 basis points at 5.221%, the 30-year yield rose 3.67 basis points to 5.5387%, and the two-year yield gained 4.78 basis points to 4.912%.
3. Inflation and data
LPL Financial chief fixed income strategist Lawrence Gillum said higher oil prices could add to upward pressure on yields and affect future inflation reports. He said he expects inflation to slow over the next year and considers some market pricing for rate hikes too aggressive. Investors were awaiting the August Personal Consumption Expenditures report on Wednesday and September non-farm payrolls report on Friday.
