Alex Borzak
The 10-year Treasury yield rose above 4.75%, while the 5-year yield reached 4.50%. The 30-year yield approached 5.26%.
The selloff accelerated after oil prices gained more than 3% following President Donald Trump's threat of further U.S. attacks on Iran. Higher energy prices increase the risk that inflation remains above the Federal Reserve's 2% target, reducing the scope for monetary easing and increasing the probability of another rate hike.
| Indicator | Level / Move |
| U.S. 5-year Treasury | 4.50% |
| U.S. 10-year Treasury | >4.75% |
| U.S. 30-year Treasury | ~5.26% |
| Oil | >3% daily gain |
| September Fed hike probability | ~60% |
Warsh Pushes Markets Toward a September Hike
Treasuries were already under pressure following Federal Reserve Chair Kevin Warsh's hawkish comments at Jackson Hole on Friday.
Warsh said policymakers need sufficient confidence that underlying inflation is returning toward the Fed's 2% target, warning that otherwise the central bank still has "work to do."
Rate markets responded by sharply increasing expectations for another increase in the federal funds rate. The implied probability of a September Fed hike rose from roughly 35% before Warsh's speech toward 60% afterward.
The oil rally reinforces that repricing. A sustained increase in crude prices would feed into gasoline, transportation and production costs, potentially slowing disinflation just as the Fed considers its next policy move.
Why the 5-Year Yield Matters
The move in the 5-year yield to 4.50% is particularly significant because that part of the Treasury curve is highly sensitive to expectations for the medium-term path of Fed policy.
Its rise indicates that markets are pricing more than a temporary geopolitical risk premium. Investors increasingly expect policy rates to remain restrictive for longer, with another hike now a material possibility.
Long-term yields are rising at the same time. The 30-year yield near 5.26% indicates investors are also demanding higher compensation for long-duration inflation and interest-rate risk. That combination has pushed the entire Treasury curve toward levels not seen since early 2025.
Oil Is the Immediate Inflation Risk
Oil has become the main short-term variable for the rates market. Prices rose more than 3% after Trump threatened additional attacks on Iran, increasing concerns over escalation and potential disruption to Middle Eastern energy supplies.
The transmission into monetary policy is straightforward:
higher oil → higher energy and transportation costs → higher inflation risk → higher expected Fed rates → higher Treasury yields.
The effect becomes more important if elevated oil prices persist rather than reverse after the geopolitical risk premium fades.
10-Year Yield Moves Closer to 5%
With the 10-year yield above 4.75%, the 5% level is becoming the next major threshold. A move toward 5% would tighten U.S. financial conditions without requiring the Fed to raise its policy rate.
Higher Treasury yields directly affect:
- Mortgages: residential borrowing rates tend to move with longer-term Treasury yields.
- Corporate debt: refinancing and new issuance become more expensive.
- Equities: higher risk-free rates reduce the present value of future earnings and pressure valuation multiples.
- U.S. dollar: higher relative yields can increase demand for dollar-denominated assets.
- Federal finances: higher yields increase the cost of refinancing U.S. government debt.
Growth and technology stocks are particularly sensitive because a larger share of their valuations depends on earnings expected further into the future.
Fed Faces Inflation Risk as Labor Market Weakens
The policy problem is complicated by signs of weaker employment. U.S. payrolls fell by 23,000 in July, while May and June employment growth was revised down by a combined 103,000 jobs. Normally, labor-market deterioration would strengthen the case for easier monetary policy. Higher oil prices create the opposite pressure by increasing inflation risk.
The Fed therefore faces two competing signals:
| Economic signal | Policy implication |
| Higher oil prices | More hawkish |
| Persistent inflation | More hawkish |
| Weak employment | More dovish |
| Slower economic growth | More dovish |
Warsh's comments indicate that inflation remains the key constraint on policy.
What Markets Are Watching
The Treasury move now depends primarily on three variables: oil prices, incoming inflation data and the August employment report.
A reversal in crude prices would remove part of the inflation premium currently embedded in yields. Persistent or rising oil prices would strengthen the case for another Fed hike and could push the 10-year Treasury closer to 5%.
The current yield structure already reflects a substantial shift in expectations:
- 5-year: 4.50%
- 10-year: above 4.75%
- 30-year: around 5.26%
The central market question is no longer how quickly the Fed can ease policy. It is whether renewed energy inflation will force the Fed to tighten again.
Alex Borzak
