‘Pandemonium’ Drives US Yield Spike Amid Fed Rate-Hike Speculation
US yields hit multi-month highs after three weeks of bond losses, as rising oil prices from the West Asia conflict prompt traders to brace for a potential Federal Reserve rate hike. Last week’s rout was driven by short-term notes, as two-year yields surged 17 basis points to 3.89 percent, marking the highest close since July. Ten-year yields jumped 11 basis points to 4.39%, marking a total increase of 44 basis points since hostilities began. “It’s chaos out here,” said Ed Al-Hussainy. “The market is currently in a sell-first, ask-questions-later phase.”
Treasuries fell alongside global bonds as escalating Iran conflict fears pushed crude prices up, raising concerns that policymakers might need to hike borrowing costs to curb inflation. Last week, the Bank of England and the European Central Bank hinted at potential policy tightening, while Fed Chair Jerome Powell emphasized the need for further inflation progress before any rate cuts.
Last month, investors anticipated two Fed cuts this year due to a weak labor market. With the ongoing war, interest-rate swaps indicate traders foresee a 30% chance of a hike by October. As the week progresses, investors will keep an eye on West Asia turmoil and analyze comments from Fed officials like Governor Michael Barr and Vice Chair Philip Jefferson. Upcoming auctions of five- and seven-year notes will reveal investor demand following the yield surge.
