10-year treasury yield rises as oil prices jump

On Monday, the 10-year Treasury yield reached 4.97%, just 3 basis points shy of the 5% milestone. The 30-year Treasury yield stood at 5.35%. This rise in bond yields was fueled by Brent crude prices hitting $107 a barrel, sparking inflation concerns and prompting investors to anticipate potential rate hikes before the Federal Reserve's upcoming policy meeting.

Goldman Sachs revised its forecast, shifting from no change to a rate increase following the August inflation report, which had a minimal impact on inflation outlook but significantly boosted the likelihood of a rate hike to nearly 90%.

Some analysts believe that long-dated bond yields could decrease if the Federal Reserve raises rates during the September 15-16 meeting. This could help alleviate some of the upward pressure on long-term yields and restore the Fed's credibility in fighting inflation. According to veteran strategist Ed Yardeni, Polymarket bettors have now raised the probability of a September rate hike to 80%.

Despite the rise in yields being observed globally, with 10-year yields in Australia and the UK both exceeding 5%, the US market has remained resilient. This resilience is attributed to the continued growth of corporate earnings. The global bond market selloff may be partly due to an unwinding of the yen carry trade, where investors borrow cheaply in Japan and invest in higher-yielding assets abroad.

As Japanese rates rise and the yen strengthens, the attractiveness of this trade diminishes. Additionally, governments and large corporations are issuing debt to fund spending and develop AI infrastructure, increasing the supply of bonds available for investors.