Oil and Inflation Push US 10-Year Yield Above 5% Ahead of Fed Decision
Treasuries weakened as rising oil prices added to inflation concerns and reinforced expectations for another Federal Reserve rate hike. The US 10-year Treasury yield climbed as high as 5.02%, its highest level since 2007, while the Dollar extended its gains.
Brent crude rose 1.6% to around $107.30 a barrel as traders focused on Middle East supply risks, with a key Saudi Arabian pipeline still offline following attacks. Higher oil prices and the Treasury selloff also weighed on Asian bonds.
Asian equities slipped 0.6% after global chip shares came under pressure following warnings from major AI companies. US equity-index futures declined 0.2%, while European markets were set for a subdued open.
Markets are also digesting last week’s hotter-than-expected US inflation reading, which has increased pressure ahead of Wednesday’s Federal Reserve decision. Traders are pricing more than a 90% chance of a Fed rate hike, while policymakers remain increasingly concerned about persistent inflation. Three officials had also dissented in favour of a hike at the July meeting.
Oil rose for a second consecutive day as traders continued to assess risks to Middle East supplies. The critical Saudi Arabian pipeline remains offline following attacks, keeping attention focused on the region’s energy flows.
Meanwhile, the US administration is considering a proposal for an “oil truce” with Iran, based on opening safe routes for oil tankers to pass through the Strait of Hormuz, according to Erem News citing diplomatic sources.
China’s consumer spending and investment remained weak in August, even as industrial output improved more than expected. The data is adding pressure on officials to provide further support for the economy.
In Hong Kong, measures aimed at promoting wider offshore use of the yuan are likely to feature prominently in the city’s inaugural five-year plan, alongside new financial products including commodities futures, according to analysts.
Elsewhere, President Donald Trump and Ukraine gave differing accounts of a supposed agreement with Russia to stop attacks on energy infrastructure, while strikes on oil refineries helped drive diesel prices to record levels.
Overall, rising oil prices and persistent inflation concerns continued to pressure global bonds and equities ahead of the Federal Reserve’s decision. With the US 10-year yield above 5% and markets pricing more than a 90% probability of a rate hike, Wednesday’s decision remains the key focus for investors.
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