Treasury Yields Soar Amid Fed Rate Hike Expectations

The US Treasury yield has surged to its highest level since 2007 as investors bet on a rate hike by the Federal Reserve. The 10-year Treasury yield jumped 6 basis points to 5.025% in early trading, while the 30-year bond yield rose over 5 basis points to 5.384%. The 2-year Treasury note yield climbed about 4 basis points to 4.68%

Markets are pricing in a more than 92% chance of a quarter-point rate hike after August inflation remained above the central bank's 2% target, according to the CME FedWatch tool.

Jonathan Liang, Standard Chartered's CIO of fixed income and FX, said: 'U.S. 10-year treasuries are highly sensitive to inflation expectations, and with inflation gauges still above the Fed's target of 2%, we believe this tight correlation will likely persist for a while.'

Experts also point out that the relationship between oil prices and Treasury yields has become tighter due to geopolitical drivers. As long as oil prices remain firm, this will add pressure to interest rates, according to Steve Sosnick, chief strategist at Interactive Brokers.