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Treasury Yields Rise as Middle East Tensions Lift Rate Bets
U.S. government bond yields rose on Monday.
Investors were worried that Middle East fighting could push oil prices higher.
Higher oil prices could add to inflation concerns.
Those concerns made traders more likely to expect the Federal Reserve to raise interest rates.
The chance of a quarter-point rate increase in October rose to 68%.
Yields moved down somewhat after reports that Qatar might help arrange talks between Iran and the United States.
The 10-year yield ended at 5.23% after reaching 5.2741%.
Investors are now waiting for inflation and jobs reports later in the week.
The 10-year Treasury yield rose 4.88 basis points to 5.23%, after reaching 5.2741%.
Thirty-year yields reached their highest level since May 2004, while 10-year yields hit their highest since June 2007.
Markets raised the probability of a 25-basis-point Federal Reserve rate hike in October to 68% from 64%.
Renewed hopes for Qatari-mediated talks helped oil prices retreat from earlier gains and eased pressure on yields.
Investors are awaiting the August Personal Consumption Expenditures report and September non-farm payrolls data.
- Who
- U.S. Treasury investors, Federal Reserve officials, traders, President Donald Trump, Iran, the United States and Qatari mediators.
- What
- U.S. Treasury yields rose as Middle East uncertainty, oil prices and expectations for additional Federal Reserve rate hikes influenced markets.
- Where
- U.S. Treasury markets; proposed diplomatic talks were expected in New York, with Qatar mediating between Iran and the United States.
- When
- September 28, with key U.S. economic reports due Wednesday and Friday.
- Why
- Investors were concerned that Middle East conflict and higher oil prices could sustain inflation and prompt further Federal Reserve interest-rate increases.
More rate hikes expected
Caution against aggressive pricing
Federal Reserve outlook
More rate hikes expected
Traders increased bets on a 25-basis-point October hike and added to expectations for another increase in December, while higher oil prices and hawkish official comments supported further-hike expectations.
Caution against aggressive pricing
Lawrence Gillum of LPL Financial said he expects inflation to slow over the next year and believes some market pricing for future hikes is too aggressive.
Middle East market impact
More rate hikes expected
The rejection of a ceasefire proposal and continued conflict uncertainty were seen as likely to keep oil prices and bond yields under upward pressure.
Caution against aggressive pricing
Reports of possible separate talks involving Qatari mediators reduced oil-market gains and provided some relief to investors.
Key facts
- 10-year yield
- 5.23% late Monday, up 4.88 basis points; it earlier reached 5.2741%.
- 30-year yield
- 5.5556%, up 5.36 basis points; it earlier reached 5.5829%.
- 2-year yield
- 4.914%, up 4.99 basis points.
- October rate-hike probability
- 68%, up from 64% on Friday, according to CME Group's FedWatch tool.
- Diplomatic development
- Qatari mediators were likely to hold separate talks with Iran and the United States on Monday or Tuesday.
- Upcoming data
- The August Personal Consumption Expenditures report was due Wednesday, followed by September non-farm payrolls data on Friday.
Quotes
Lawrence Gillum
Chief fixed income strategist for LPL Financial
“Oil prices are up again after the Middle East ceasefire offer was rejected by Trump. There's likely going to continue to be upward pressure on bond yields as long as the Iran conflict uncertainty is out there.”
livemint.com
“Higher oil prices are going to lead into future inflation reports. Markets are pricing in a Fed hiking campaign over the next 12 months.”
livemint.com
Sources
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