Treasury yields climb as oil prices fuel inflation concerns

U.S. Treasury yields climbed to levels not seen in decades as rising oil prices and strong economic data sharpened expectations of further Federal Reserve interest-rate increases. The average 30-year fixed mortgage rate reached 7.37% on Thursday, its highest level since May 2024, NBC News reported.

The yield on the 30-year Treasury bond rose as high as 5.47%, a 22-year high, according to NBC News. Separately, CBS News reported that the yield on the 30-year Treasury note reached 5.44% Wednesday before slipping slightly Thursday morning. The 10-year Treasury bond yield climbed to 5.18% in early trading Thursday, NBC reported. Bond prices move in the opposite direction from yields.

Investors had already been weighing inflation and growing U.S. debt. Yields jumped Wednesday after stronger-than-expected economic data led traders to increase their bets on Fed rate hikes, CBS reported. An S&P Global report released that morning showed U.S. business activity accelerating in September while companies’ input costs rose at the fastest rate in four years, with fuel and transport costs spiking, according to NBC.

Weak demand at a Wednesday auction of five-year Treasury notes forced the government to offer higher yields to attract buyers, CBS reported. A government report Thursday showed that fewer U.S. workers applied for unemployment benefits last week, further strengthening expectations for the economy, the outlet said.

Oil prices jumped overnight after a mediated U.S. dialogue with Iran at the United Nations General Assembly produced no tangible evidence of progress toward ending the seven-month war, NBC reported. Brent crude closed Thursday up 3.4% at $106.60 a barrel, while U.S. crude gained 2.6% to $94.61. Both benchmarks have risen more than 65% since the start of the year.

Prices briefly retreated after Reuters reported, citing unnamed sources, that U.S. and Iranian negotiators were exploring a phased path out of the war involving the reopening of the Strait of Hormuz. NBC said it had not confirmed the report.

Fuel costs are reaching consumers and businesses. NBC put Thursday’s national average diesel price at $6.51 a gallon, up 73% since the Iran war began, and regular gasoline at $4.48, up 50% since the U.S. and Israel attacked Iran in late February. CBS reported that higher diesel costs in agriculture, trucking and construction could feed into prices for food and other goods.

The Fed raised rates earlier this month for the first time since 2023, CBS reported. Annual consumer inflation stood at 3.4% in August, above the central bank’s 2% target. New York Fed President John Williams said Thursday another increase may be appropriate by year-end; Philadelphia Fed President Anna Paulson said “some modest further tightening may be warranted.”

“The jump in bond yields this week is driven by inflation and the belief that it’s going to take a lot more Fed rate hikes to curb it,” Heather Long, chief economist at Navy Federal Credit Union, told CBS. Higher borrowing costs can make homes, cars and other purchases financed with debt more expensive. “On Main Street, this is yet another part of the affordability crunch,” Long said.

The sell-off extended overseas: NBC reported that Japan’s 10-year government bond yield reached its highest level since 1996 and Germany’s hit its highest since 2009. The Treasury Department has been buying back longer-dated bonds in an effort to keep yields low, NBC reported. In the plan’s second round Thursday, it bought back about $4 billion in 20- and 30-year bonds. Yields rose after the operation.