Key facts
- The 10-year US Treasury yield reached 4.71%, its highest level since January 2025.
- Brent crude oil surged 7% to $100 per barrel due to renewed tensions between Iran and Washington.
- Markets are pricing in a 36% chance of a Federal Reserve rate hike at its next policy meeting.
- The 2-month Treasury yield increased by 13 basis points to 3.95%, reflecting expectations of a July rate hike.
- US stocks declined, with the Dow, S&P 500, and Nasdaq Composite all closing lower on Thursday.
The 10-year US Treasury yield has climbed to 4.71%, its highest level since January 2025, as geopolitical tensions, inflation fears, and shifting Federal Reserve policy expectations impact the bond market. Renewed conflict between Iran and Washington has pushed oil prices higher, with Brent crude reaching $100 per barrel, further fueling inflation concerns. Investors are demanding higher yields to compensate for inflation risk and potential Fed rate hikes, with markets pricing in a 36% chance of an increase at the upcoming policy meeting. The 2-month Treasury yield, a key indicator for near-term Fed policy, spiked 13 basis points to 3.95%, suggesting a potential 'surprise' rate hike in July. This rise in Treasury yields is increasing borrowing costs across the economy, including the average 30-year fixed mortgage rate, which has reached 6.58%. The market is also adjusting to the new leadership at the Federal Reserve under Chairman Kevin Warsh, who has signaled a more data-dependent approach and moved away from forward guidance, leaving traders to interpret economic data independently. US stocks closed lower on Thursday, with the Dow, S&P 500, and Nasdaq Composite all declining. Major tech companies like Alphabet and Tesla saw significant drops following earnings reports and concerns over increased spending on artificial intelligence and unmet expectations, respectively. The ongoing conflict with Iran has also incurred significant costs for the United States, estimated at $37.5 billion.