Yields Hit 24-Year Highs Amid Energy-Driven Inflation Concerns

US Treasury yields have reached their highest levels in 24 years due to concerns over energy-driven inflation. The 10-year yield rose to 5.33%, while the 30-year yield hit 5.67%. Meanwhile, the two-year US yield touched 4.92% for a second consecutive session.

The rising oil prices have fueled inflation fears, but softer-than-expected inflation metrics have eased expectations of near-term Federal Reserve rate hikes. The CME FedWatch Tool now indicates that markets price in around a 39% chance of an October rate hike, down from nearly 51% prior to the latest release.

Analysts at MUFG/BTMU note that short-term US yields and the US Dollar initially fell after the report, but quickly rebounded as markets looked through the surprise in the inflation data. They attribute this to bigger-than-expected revisions in the Bureau of Economic Analysis's methodology for three components: portfolio management and advice, software and accessories, and legal services.

Market attention now shifts to Friday's US Nonfarm Payrolls report, with consensus estimates anticipating 90,000 jobs added in September. Elevated oil prices remain a key driver of market stress, as the United States and Iran made little progress in negotiations, despite emerging signs of recovering Middle East supply flows.