Treasury Yields Break Above 5% as Oil Prices Surge

The Federal Reserve (FOMC) and Bank of Japan (BoJ) are expected to hike rates this week, but their decisions may not have as big an impact on markets as other factors. The move in US Treasury yields is a key indicator, with the 10-year note testing above 5% for the first time since October 2023. This has significant implications for inflation and risk markets.

Historically, when the 10-year yield breaks above 5%, it has led to a buying opportunity in US Treasury yields. The last time this happened was in October 2023, when yields dipped to 3.8% after hitting 5%. With an upcoming maturity wall, current US Treasury Secretary Scott Bessent may not have as much flexibility to shift upcoming Treasury issuance.

Another important factor is oil prices, which are testing above $100 per barrel for the first time since March. Higher oil prices can exacerbate inflation and weigh on risk markets, particularly if accompanied by a breakout in yields.