The 10-year Treasury yield jumped to the highest level since January 2025 as inflation pressures intensified following renewed hostilities between the US and Iran that pushed crude prices higher.
The 10-year rate was up 3.4 basis points to 4.79% on Tuesday, while the two-year yield increased 3.7 basis points to 4.39%.
The US launched a fresh wave of airstrikes against Iran's Islamic Revolutionary Guard Corps' targets on Tuesday, US Central Command said in a post on X.
The development follows Washington reportedly attacking two rocket launchers on Iran's Larak Island on Sunday. Iran responded by launching missiles at two US air bases in Jordan, Reuters reported Tuesday.
The Strait of Hormuz -- the world's most important chokepoint for crude flows -- remains effectively shut due to the US and Iran war.
West Texas Intermediate crude was up 4.9% at $89.98 a barrel in afternoon trade, while Brent rose 4.4% to $94.48. Both benchmarks registered modest increases for the month of August after posting sharp gains in July.
"Rising oil prices and Treasury yields pressured most sectors as renewed US-Iran tensions revived inflation concerns," Saxo Bank said in a note Tuesday.
The Federal Reserve's preferred inflation metric -- the personal consumption expenditure price index -- held steady at 3.7% year over year in July, well above its 2% target, data released last week showed. The annual core rate, which excludes food and energy, was unchanged at 3.3% in July.
Fed Chair Kevin Warsh said Friday that inflation numbers were concerning, echoing sentiment from Federal Open Market Committee colleagues that have called for a tighter monetary policy to ease price pressures.
Fed Governor Michael Barr said Tuesday that the US central bank should raise interest rates unless inflation cools down.
The odds of a quarter-point rate hike next month rose to about 68% on Tuesday from 65% the day before and 40% a week ago, according to the CME FedWatch tool. The probability that the Federal Open Market Committee will keep the benchmark rate steady fell to about 32% from 35% yesterday and 60% last week.
"The US Treasury yield curve continued to lift, this time in a bear-steepening move as long-dated Treasury yields rose faster than yields at the front of the curve, as the market remains unsure how aggressively to price in Fed policy tightening after (Warsh's) hawkish speech on Friday," Saxo Bank wrote.
