US Treasury yields surge on oil, inflation pressure; 30-year hits highest since 2007

US Treasury yields jumped sharply again Thursday (local time) as an inflation reading raised the odds of a Federal Reserve interest rate hike next week and oil prices spiked.

The yield on the 30-year Treasury bond climbed as much as 6.8 basis points during trading Thursday to 5.354 percent, its highest level since June 2007. That surpassed the 5.33 percent level it had reached last month. The 10-year Treasury yield, a global benchmark, also rose during trading to 4.927 percent, its highest since October 2023.

Some in the market say the 10-year yield could test the 5 percent threshold. "If the 10-year breaks above the 4.95 percent level, we expect it to go to 5 percent," said Tom di Galoma, managing director at Mischler Financial Group.

The two-year yield, which is sensitive to monetary policy expectations, rose 9.12 basis points to 4.518 percent, its highest level since July 2024.

A surge in global oil prices combined with a bigger-than-expected rise in producer prices to heighten inflation concerns and worries over a Fed rate hike.

The US Department of Labor said Thursday that the producer price index for August rose 0.4 percent from the previous month. The figure matched market expectations but marked an acceleration from July's 0.1 percent rise. Compared with a year earlier, the index rose 5.4 percent, slightly above the market forecast of 5.3 percent.

Energy prices, which rose 4.2 percent from the previous month, led the increase in producer prices.

The data heightened concern in the market that inflationary pressure may not ease as quickly as expected.

CME FedWatch data Thursday showed a 70 percent probability of a 0.25 percentage point Fed rate hike at September's Federal Open Market Committee meeting, up from 62 percent. The hike would lift the benchmark interest rate from the current 3.50 to 3.75 percent range to 3.75 to 4.00 percent.

"Ahead of the PPI report, the overnight jump in oil prices was mainly driving the market," said Molly Brooks, US rates strategist at TD Securities. "While the headline PPI number matched expectations, some components that feed into the Fed's preferred core personal consumption expenditures gauge came in somewhat stronger than the market expected."

Oil prices also jumped more than 4 percent Thursday, adding to inflation worries. Amid expectations that tensions in the Middle East will persist, Brent crude futures traded around $105 a barrel, while West Texas Intermediate crude futures broke above $100.

Reports also emerged that Yemen's Iran-aligned Houthi rebels had seized Mokha, a key city on the Red Sea coast. The advance put them on the verge of controlling the Bab-el-Mandeb Strait, a strategic chokepoint at the entrance to the Red Sea.

Tensions between the United States and Iran over the Strait of Hormuz are already simmering. Now the threat to a key oil route through the Red Sea raises the prospect of further shocks to global maritime logistics and energy transport.

Adding to the pressure on long-term yields was President Donald Trump's pledge for large-scale cash payments.

Trump said Thursday at a Republican midterm election convention that if the party wins the November election, he would give $5,000 to every adult citizen. With the US national debt already exceeding $40 trillion, the pledge has stoked concerns over a widening fiscal deficit and increased Treasury issuance.