Yields Soar as Markets Reprice Expectations Amid Rising Oil Prices

US Treasury yields have surged to levels not seen since the financial crisis as markets responded to the Federal Reserve's (Fed) scaled-back guidance. The sudden sell-off pushed long-term yields higher, raising questions about whether volatility will become the new normal.

The sharp drop in Treasury prices sent two-year yields to 4.37%, their highest level since February 2025, while the 10-year yields stood at 4.71% as of Thursday. Thirty-year yields climbed to 5.19%, approaching a threshold not breached since 2007.

Gennadiy Goldberg, head of U.S. rate strategy at TD Securities, attributed the selloff to rising oil prices and uncertainty about the duration of the conflict in Iran, fueling inflation fears. The resilient US economy combined with Fed Chair Kevin Warsh's softer approach to managing markets only heightens the move.

Market-implied odds of a rate increase at the next Fed meeting are around 38%, up from 12% a week ago. Even keeping rates at the current level could mark the second-largest gap between market expectations and Fed policy in the last decade, while an actual increase would be the largest gap over the same period.