US Treasury Yields hit 24-year highs amid energy-driven inflation concerns

US Treasury yields hit a 24-year high due to concerns over persistent, energy-driven inflation that could result in stricter monetary policy. The 10-year yield reached 5.33%, while the 30-year yield peaked at 5.67%. The two-year yield experienced its second consecutive increase, reaching 4.92%. Oil prices remained high as the US and Iran failed to make progress in negotiations, even though there were signs of recovering Middle East supply flows.

Deutsche Bank's Jim Reid described the situation as "a tricky quarter," attributing the market stress to the re-escalation in the US-Iran conflict. Brent crude oil prices surged by 42% from their June lows, causing a significant global bond selloff and driving 10-year Treasury yields up for the seventh consecutive month since 2011.

Although near-term Federal Reserve rate hikes have become less likely following weaker-than-expected inflation metrics, markets quickly adjusted, with short-term US yields and the US Dollar falling before rebounding. Analysts from MUFG/BTMU noted that the recent PCE deflator report showed a more substantial moderation in price pressures than initially expected, with the annual rate of change decreasing by 36 basis points instead of the anticipated 10-20 basis points.

The August US Personal Consumption Expenditures (PCE) price index rose 0.3% month-over-month, while core PCE grew 0.2%, below the 0.3% consensus. On an annual basis, headline PCE inflation declined to 3.4%, well below the projected 3.7%. Market focus now shifts to Friday's US Nonfarm Payrolls report, with expectations of 90,000 jobs added in September and a stable unemployment rate of 4.1%.