10-year treasury touches highest level since 2023 as oil prices stay elevated

The 10-year Treasury yield touched a 10-month high of 4.77% on Wednesday, marking its highest level since November 2023. The 30-year Treasury yield reached 5.26%. This surge in long-dated bond yields can be attributed to a rise in oil prices nearing $95 per barrel. Rising inflation and continued government fiscal spending have led investors to price in these factors.

Analyst David Morrison noted that investors are concerned about government debt levels and fiscal deficits, which they perceive as insurmountable without difficult decisions to reduce spending or raise taxes. Federal Reserve Chair Kevin Warsh recently hinted at potential policy rate hikes to combat inflation, with Fed Governor Barr suggesting a September rate increase if inflation does not improve.

At the same time, governments are competing with tech giants to issue debt for AI infrastructure development. These companies are now issuing bonds due to the high costs of AI, which free cash flow can no longer cover.