US 10-year Treasury bonds hit 19-year high ahead of Fed rate decision

U.S. Treasury yields climbed to a 19-year high on Tuesday, just prior to the Federal Reserve's rate decision. The benchmark 10-year Treasury note's yield reached its highest level since July 2007, at 5.008%. This surge was primarily driven by global bond markets and concerns over rising oil prices. The Bank of England was reportedly preparing to stop selling long-dated government bonds, freeing up funds for the government.

Rising crude prices, caused by attacks on Saudi Arabian energy infrastructure, further fueled the increase in yields. Experts noted that all types of inflation data and geopolitical events were pointing in the same direction, with no signs of relief. Jim Barnes, a fixed income director, emphasized that there was no catalyst reversing the current bond yield momentum.

The 30-year bond's yield also increased, reaching 5.373%, its highest since June 2007, with additional supply expected later in the day from a $13 billion Treasury auction. Expectations for a Federal Reserve rate hike were growing, with markets now predicting a 92.7% chance of a 25 basis point increase at the central bank's Wednesday announcement.

This marked a substantial shift from 59.4% a week ago and 33.1% a month ago. The yield curve's gap between two- and 10-year Treasury notes stood at a positive 34.5 basis points. A rate hike decision could place new Federal Reserve Chairman Kevin Warsh in a difficult position, as President Donald Trump had chosen him with the clear expectation of rate cuts.

The 2-year U.S. Treasury yield climbed to 4.661%, its highest since July 2024, while markets anticipated nearly 100 basis points of rate hikes over the next year.