Treasury yields climb as traders price higher Fed rate risk

U.S. Treasury yields moved higher on Tuesday, extending the prior session’s rise as investors increased wagers on Federal Reserve rate hikes and assessed renewed pressure in oil markets. The 10-year Treasury yield, a benchmark for borrowing costs across the economy, was above 4.62% in early New York trading, while crude prices climbed after President Donald Trump’s latest measures targeting Iranian trade routes.

By 6:02 a.m. ET, the 10-year yield was up more than 1 basis point at 4.622%, according to market data cited by CNBC. The 2-year Treasury yield, which tends to track expectations for near-term Fed policy more closely, rose more than 1 basis point to 4.277%. The 30-year bond yield gained nearly 1 basis point to 5.105%.

A basis point is one-hundredth of a percentage point. Treasury prices and yields move in opposite directions, so rising yields indicate falling prices for the securities.

The move followed a broader increase across the Treasury curve on Monday. CNBC reported that the 10-year yield rose 4 basis points and the 2-year yield climbed more than 6 basis points after Trump announced plans to blockade Iranian ports and levy a 20% fee on cargo moving through the Strait of Hormuz.

Oil markets strengthened alongside the shift in rate expectations. West Texas Intermediate futures were last 3.2% higher at $80.66 a barrel, while Brent crude, the global benchmark, rose 4.3% to $86.90, according to CNBC.

Higher energy prices can complicate the inflation outlook because transport, production and household fuel costs feed through parts of the economy. Bond traders have treated the rise in oil as a factor that could limit the Fed’s room to ease policy, or increase the likelihood that officials tighten further if price pressures persist.

According to CME Group’s FedWatch tool, market pricing showed traders assigning a 39% probability to a Fed rate increase at the July 29 meeting, compared with 26.7% a week earlier. The same tool indicated that expectations for two rate increases by April next year were gaining momentum.

Investors were also preparing for Federal Reserve Chairman Kevin Warsh’s first congressional testimony in the role. Warsh is scheduled to speak before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday, with lawmakers expected to question him on the condition of the U.S. economy.

The next inflation reading is due later Tuesday. Consensus forecasts cited by CNBC point to annual inflation easing to 3.8% in June from 4.2% in May. Core inflation, which excludes food and energy because of their volatility, is expected to remain at 2.9% on a year-over-year basis.

The figures will be closely watched because they arrive before the Fed’s July 29 policy decision. A firmer-than-expected reading could reinforce market expectations for tighter policy, while a softer print would give investors more evidence to test whether the recent rise in yields reflects temporary energy concerns or a broader reassessment of the inflation path.

This story draws on original reporting from CNBC.