Treasury Yield Nears 5 Percent as Fed Rate Hike Bets Reach New High

The US Treasury yield neared the key psychological level of 5 percent on Monday ahead of this week's Federal Reserve meeting. The Fed is widely expected to raise interest rates to stem inflation that is already running well above its 2 percent annual target.

US consumer prices accelerated in August, data on Friday showed, boosting bets that the Fed will hike rates. Tom di Galoma, managing director at Mischler Financial, said this was 'probably the nail in the coffin'. Surging oil prices have added to concerns that inflation will keep worsening as the war with Iran drags on.

The strong jobs picture, with employers adding 162,000 jobs last month, also reinforced the view. Fed funds futures traders are now pricing in 89 percent odds of a hike at the conclusion of the Fed's two-day meeting on Wednesday.