US 10-year Treasury yield nears 5% as oil prices and rate-hike expectations lift global bond yields
Rising oil prices above $100 a barrel and growing expectations of a near-term Federal Reserve rate hike pushed the US 10-year Treasury yield close to 5%, while bond yields rose across major economies.
The US 10-year Treasury yield climbed to 4.98% in early Asian trading on Friday, the highest level since late 2023, as oil prices surged above $100 a barrel and investors priced in a higher probability of a Federal Reserve rate increase. The broader bond market also saw yields rise, with G7 10-year yields up an average of 19 basis points this week, marking the steepest weekly sell-off since the start of the Middle-East conflict.
Deutsche Bank strategist Jim Reid said, "Once again, it is geopolitical fears driving everything." Bank of Singapore chief macro strategist Mansoor Mohi-uddin added, "We're seeing a perfect storm of higher oil prices, more inflation fears, central bank hawkishness and ongoing concerns over fiscal deficits all combining to push global yields higher." He warned that strong US consumer-price data could push the 10-year yield above the 5% threshold.
Higher yields are expected to raise borrowing costs for mortgages, auto loans and corporate debt, while also making bonds more attractive relative to equities. In Europe, German 10-year Bund yields rose to 3.50% and French 10-year yields hovered near 4.43%, reflecting domestic fiscal pressures. In Japan, 10-year government bond yields increased to 2.97% ahead of a likely Bank of Japan rate hike.
Brent crude futures hit $109.97 a barrel, a four-month high, after attacks on shipping routes in the Middle East heightened supply-disruption concerns. The CME FedWatch tool showed the market’s view of a Fed hike next week rising to 72% from 49% a week earlier. The US Treasury’s latest bond buyback, amounting to $5.2 billion, was below the $6 billion cap and far short of the $10.5 billion offered, offering limited support to liquidity.
Analysts such as TD Securities senior rates strategist Prashant Newnaha noted that sustained oil prices above $100 make 10-year yields above 5% likely, and that upcoming US inflation data will be a key driver for market expectations.