Treasury Yields Rise as Oil Prices Surge

Treasury yields climbed to their highest levels in months Tuesday as oil prices jumped after the U.S. military announced further strikes against Iran, extending a global sell-off in bonds and adding pressure on stocks.

The yield on the 10-year Treasury rose to about 4.78% to 4.79%, its highest level since January 2025. The 10-year note is a key benchmark for consumer borrowing, influencing rates on mortgages, auto loans and credit card debt. The 2-year Treasury yield, which closely tracks expectations for Federal Reserve policy, rose to 4.37% from 4.34% late Monday, while the 30-year Treasury hovered near 5.25%.

The sell-off was not limited to the United States. A Bloomberg gauge of global bond yields rose to 3.72%, its highest level since June 2008, CBS News reported. NBC News reported that Japanese benchmark bond yields hit a record high, while 30-year U.K. government bonds reached their highest level since 1998.

Oil prices added to inflation worries. Brent crude, the global benchmark, climbed nearly 4% to $94 a barrel Tuesday, while U.S. crude rose more than 4% to above $89 a barrel. At midday, the S&P 500 was down 0.65%, and the Nasdaq fell 0.86%.

Analysts pointed to several forces driving yields higher: persistent inflation, rising energy prices, widening government deficits and growing debt loads. Bond prices and yields move in opposite directions, so rising yields signal that investors are selling bonds and demanding higher returns to hold them.

“Fiscal concerns, rising energy prices and AI-related investment have lifted long-term government bond yields across major economies to multi-decade highs,” James Reilly, a senior markets economist at Capital Economics, said in a research note Tuesday.

Morningstar said the latest flare-up in the U.S.-Iran conflict has intensified concerns that central banks may raise interest rates to counter inflation caused by higher energy costs. “The spike in borrowing costs comes as the latest flare-up in the U.S.-Iran war has raised concerns that central banks will hike interest rates to combat inflation from higher energy costs,” the investment research firm said Tuesday.

Federal Reserve Chairman Kevin Warsh said last week that the central bank will have “work to do” if inflation does not subside, comments investors interpreted as a signal that policymakers could raise rates at their Sept. 15-16 meeting. Interest rate traders now see a 66% chance of a September rate increase, according to CME Group’s FedWatch tool.

Higher Treasury yields can quickly affect households. Mortgage rates often track the 10-year Treasury, meaning home buyers may face higher borrowing costs. Rates on auto loans and credit cards can also rise. Businesses may find it more expensive to expand, and higher borrowing costs can weigh on stocks, gold and cryptocurrencies. Savers, however, may earn more from high-yield savings accounts and certificates of deposit.

Some market observers see the rise in yields differently. Matthew Klein, author of The Overshoot newsletter, argued that higher yields may reflect stronger growth after years of sluggish expansion, helped by artificial intelligence investment and government spending. “Today’s rates are obviously too high only if inflation and growth are both poised to slow sharply from here,” Klein wrote. “That is certainly possible, but it would (probably) only happen if the U.S. fell into a downturn.”

Treasury Secretary Scott Bessent also downplayed concerns Monday, telling CNBC that yields are flat when measured across President Donald Trump’s second term. He said productivity growth could offset inflation concerns and described high global prices as a temporary supply shock. “We will get on the other side of the Iran conflict,” he said.

Still, several analysts expect turbulence to continue. Reilly said the current bond sell-off is “unlikely to suddenly shift into reverse anytime soon.” Ulrike Hoffmann-Burchardi of UBS Global Wealth Management said she expects yield volatility to persist in the near term before settling late in the year, projecting the 10-year Treasury yield to end the year at 4.5% and the 30-year yield at 5%.