Oil Price Rebound Sparks Treasury Yield Surge, Rate Hike Bets Soar

U.S. Treasury yields have seen a sharp rise due to rebounding international oil prices and unexpectedly strong U.S. PMI data. The 5-year Treasury note yield has surged nearly 20 basis points, breaking above 5% for the first time since 2007. Meanwhile, the 2-year Treasury yield has jumped nearly 15 basis points, topping 4.9% and hitting a new high not seen since late 2024.

The U.S. PMI data showed accelerating economic activity and rising corporate cost pressures in September. The S&P Global U.S. Composite PMI rose to 58.4 from 56.0 in August, reaching its highest level since July 2021. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented: 'U.S. business activity continues to expand robustly.'

Market expectations for a rate hike by the Federal Reserve at its October meeting rose to around 75% following the release of the PMI data. The latest CME FedWatch Tool indicates that the probability of a rate hike in October has edged down slightly to 68.6%. Federal Reserve Governor Bowman stated: 'In my view, further policy adjustments will likely be necessary to ensure that inflation returns to its target in a timely manner.'