US Government Bond Yields Soar to 5.04% Amid Oil Price Surge

The yield on 10-year US government bonds rose to 5.04%, its highest level since 2007, due to growing inflation concerns following a jump in oil prices.

Oil prices have been increasing since the start of the US and Israel's war with Iran, with the benchmark wholesale price exceeding $109 per barrel on Tuesday, up from about $86 at the end of August.

The rise in oil prices has fueled concerns that it may lead to higher inflation, prompting investors to demand higher yields for government borrowing. Treasury Secretary Scott Bessent described the intervention by the US to buy back bonds as successful, but investors expect Federal Reserve Chair Kevin Warsh to raise rates to curb inflation.

Bond markets have been signaling a possible need for higher rates, according to Carol Schleif, chief market strategist at BMO Wealth Management. She noted that rates may remain high if geopolitical tensions and high energy prices persist.