Oil at $100 Swallows Inflation Relief; U.S. 10-Year Yield Breaks Above 4.9%

【Financial News, New York = Reporter Lee Byung-chul】  U.S. Treasuries came under renewed pressure as international oil prices broke above $100 per barrel again. Although U.S. producer prices in August were broadly in line with market expectations, concerns that high oil prices could reignite inflation overshadowed the data. The 10-year Treasury yield climbed above 4.9% to its highest level since November 2023, while the 2-year yield, which is sensitive to Federal Reserve (Fed) monetary policy, also broke above 4.5%.
According to CNBC on the 10th local time, the 10-year Treasury yield rose more than 6 basis points (1 basis point = 0.01 percentage point) to 4.906%. That was its highest level in roughly three years, since November 2023. The 30-year Treasury yield also rose more than 5 basis points to 5.337%, surpassing 5.34% during the session.
The 2-year yield was particularly volatile, surging to 4.501% intraday, its highest level since July 2023. Its increase exceeded 7 basis points, outpacing the rise in the 10-year yield.
The direct trigger for the turmoil in the Treasury market was international oil prices.
West Texas Intermediate crude oil (WTI) futures jumped more than 4% that day, breaking above $100 per barrel. Brent crude also rose above $105 per barrel. The renewed increase in prices reflected growing concerns that prolonged armed conflict between the United States and Iran could disrupt crude production and maritime transportation in the Middle East.
The bond market is focused less on the oil price itself than on how higher oil prices could affect U.S. inflation going forward. Rising international oil prices can feed into the prices of goods and services through gasoline and transportation costs. If inflation rises again, the Fed may keep interest rates high for longer than expected or become more likely to raise rates further.
As a result, even the relatively stable producer-price data released that day offered little relief to the bond market.
The U.S. Department of Labor reported that the August Producer Price Index (PPI) rose 0.4% from the previous month, in line with market expectations. Core PPI, excluding food and energy, increased 0.2%, below the market forecast of 0.3%.
However, the Treasury market reacted more sensitively to how much current oil prices above $100 per barrel could drive up inflation in the future than to the August inflation data, which had already passed.
The 2-year yield’s break above 4.5% is being interpreted as a sign that the market does not view high oil prices merely as a geopolitical risk. The 2-year Treasury is the security most sensitive to expectations for the Fed’s policy rate.
If high oil prices push inflation higher again, the Fed’s room to cut rates could narrow further. That is why some in the market are even discussing the possibility of additional rate hikes.
Longer-term Treasuries also remain under pressure. U.S. Treasury yields rose the previous day as well. Although Treasury Secretary Scott Bessent expanded the size of long-term Treasury buybacks to $6 billion, the move fell short of market expectations and failed to halt selling in longer-dated bonds.
The U.S. Treasury market has once again been saddled with the double burden of “high oil prices and high interest rates.” With the 10-year yield approaching 5%, additional upward pressure could build on actual borrowing costs for U.S. households, including mortgages and auto loans. The 10-year Treasury yield serves as a key benchmark for long-term borrowing rates in the United States.
The market’s attention is now turning to the August Consumer Price Index (CPI), due on the 11th. Since Treasury yields surged even though producer prices remained within the expected range, a renewed confirmation of inflationary pressure in the CPI could trigger greater volatility in the bond market.




[email protected] Reporter Lee Byung-chul Reporter