Global Tightening Wave Pushes US 10-Year Yield Back to 5%

The US 10-year Treasury yield has returned to 5% after the Federal Reserve's decision to increase rates on Wednesday. This move, combined with the Bank of Japan's (BoJ) 25 basis point hike to 1.25%, has sent a wave of tightening across global markets.

Traders are pricing in further rate hikes by the Fed, with money markets predicting 34 basis points of tightening by the end of 2026. The odds of a hike in October and December are 55% and 90%, respectively, according to Prime Terminal.

The increase in US bond yields is also being driven by concerns over inflation, which is well above the Fed's 2% goal. The uncertainty surrounding the Middle East conflict has pushed oil prices higher, increasing the risk of upside inflation.