Oil Price Surge Drives US Yields to Multi-Year Highs

US government bond yields surged to multi-year highs after oil prices rose by over five percent, spurring bets that the Federal Reserve will increase interest rates as soon as next week.

The 10-year note's yield climbed as high as nine basis points to 4.93%, last seen in November 2023, while the 30-year benchmark reached levels not seen since 2007 and the two-year note yield exceeded 4.5% for the first time since 2024.

Traders boosted expectations for a Fed rate hike next week to about 70% and fully priced in a move by October instead of December, according to Treasury options trading.

Benchmark oil prices advanced towards peak levels reached since the US attacked Iran in late February, hitting government bond markets globally with UK two-year yields climbing 17bps and Eurozone bond markets slumping after the European Central Bank raised interest rates on Thursday by a quarter point to 2.5%.