U.S. Treasury yields extended their climb on Monday, with the benchmark 10-year yield rising above 4.75%, its highest level since January 2025. The sell-off in bonds was driven mainly by a nearly 3% jump in international benchmark oil prices, which intensified concern that inflation pressures could pick up again.
Comments from Federal Reserve Chair Kevin Warsh also added to the move. After Warsh signaled a tighter policy stance at the Jackson Hole Symposium, markets raised expectations that the Fed could resume rate hikes in September. Barclays, Societe Generale and other institutions then revised their forecasting models and shifted toward expecting another increase this year.
Oil gains push inflation expectations higher
International benchmark oil prices settled nearly 3% higher as geopolitical tensions worsened, adding to worries over a renewed rise in energy-driven inflation and triggering selling across U.S. Treasuries.
The 10-year yield broke above 4.75%. The 5-year yield also reached its highest level since early last year, while the 30-year yield climbed about 5 basis points to around 5.26%. Moves in energy prices fed directly into inflation expectations, leading investors to reassess valuations and risk premiums in fixed-income assets.
Warsh's hawkish message shifts rate forecasts
Speaking on Friday at the global central banking symposium, Warsh said the Fed was prepared to act if inflation pressures stayed elevated, a remark that signaled a hawkish policy bias.
That statement prompted institutions including Barclays and Societe Generale to quickly revise their economic forecasts and add a rate-hike scenario that had not previously been expected. Markets are now closely watching the August employment report, the Consumer Price Index due on Sept. 11, and the policy decision scheduled for Sept. 16.
CME FedWatch data showed the implied probability of a September rate hike had risen to 65.4%, with a further increase in December also seen as possible.
Corporate bond supply and options hedging add pressure
Beyond policy expectations, supply and demand dynamics in the bond market were also weighing on long-dated Treasuries. September is traditionally a peak month for corporate bond issuance, and the market expects new supply this month to exceed levels seen in the same period of previous years. Month-end index rebalancing has also driven a clear pickup in Treasury futures trading.
Bloomberg reported that the options market had also seen large hedging trades. Traders spent about $6.5 million on put options tied to Treasury futures, betting that the 30-year Treasury yield could climb from about 5.25% to 5.7%.