Treasury Yields Edge Higher as Energy Costs Revive Inflation Fears

U.S. Treasury yields rose on Friday, pushing two‑year yields to 4.79% and ten‑year yields to 5.25% as lingering high energy costs revived inflation worries and fed expectations for more Federal Reserve rate hikes. The move erased part of a relief rally that had lifted yields after strong demand at 10‑ and 30‑year auctions earlier in the week. Brij Khurana, portfolio manager at Wellington Management, said the market is digesting a very volatile week and that prices tend to stabilize before moving decisively one way or the other. Investors have been shedding long‑dated global debt for weeks, citing rising inflation tied to the war in Iran and fears of expanding fiscal deficits, which earlier pushed 30‑year yields to levels not seen since 2002. Thursday saw yields dip as auction demand steadied, while Brent crude hovered around $104 a barrel after President Donald Trump pledged to pause further attacks on Iran until after the U.S. midterms and reported that Russian President Vladimir Putin agreed to release diesel into the global market. Padhraic Garvey, head of research for the Americas at ING Groep NV, warned the market is looking for an excuse to sell rather than buy and lacks validation for aggressive yield buying. The upcoming U.S. CPI report on Wednesday is expected to shape the next Fed move; the central bank raised rates for the first time since 2023 last month, with traders assigning only a 20% chance of another hike in October but pricing a December increase as fully likely. Marc Chandler, chief market strategist at Bannockburn, said a firm CPI reading could lift expectations for Fed policy and push long‑term rates higher. US cash bond markets will be closed Monday for a holiday.

Context

The rise in yields makes borrowing more expensive for businesses and consumers, which can slow economic activity. Energy costs feed into headline inflation numbers that the Fed monitors when setting rates. Market participants watch the CPI report closely because it often triggers the Fed’s next policy decision.