US Treasury yield hits 5% as oil prices climb

U.S. government borrowing costs have climbed to about 5% as surging oil prices and escalating conflict in the Middle East deepen a sell-off across global bond markets.

The yield on the 10-year U.S. Treasury bond, a benchmark that helps set borrowing costs across financial markets, reached the psychologically important 5% threshold as traders braced for a Federal Reserve interest rate decision this week. The Guardian reported the yield hit 5% on Monday for the first time since 2023, while Al Jazeera reported it reached 5.02% on Tuesday, calling it the highest level in 19 years and a level unseen since the 2007 global financial crisis.

The rise has been driven in part by a renewed jump in oil prices. Brent crude, the international benchmark, rose more than 3.7% on Monday to above $108.5 a barrel, The Guardian reported. Oil has moved back above $100 a barrel as the U.S.-Israeli war with Iran continues to disrupt energy facilities and shipping routes across the Middle East.

Recent attacks have intensified market concerns. Yemen’s Iran-aligned Houthi forces launched attacks against Saudi Arabia and captured the strategic island of Perim in the Bab al-Mandab strait on Sunday, expanding their control of the waterway, according to The Guardian. Al Jazeera reported that Houthi rebels advanced toward the Bab al-Mandeb strait last week, describing it as a critical bypass for Saudi oil choked off at the Strait of Hormuz.

Saudi Arabia also has faced disruption to its East-West pipeline. The Guardian reported that drone attacks forced the kingdom to close the vital crude pipeline and that traders warned Saudi Arabia could run out of oil stocks for export if it did not reopen the pipeline within days. Al Jazeera reported that strikes suspected to have been launched by an Iran-aligned Iraqi militia temporarily disabled the pipeline, which carries oil to Red Sea ports.

The Strait of Hormuz remains a central concern for energy markets. The Guardian reported that Gulf states postponed a meeting with Tehran on creating a temporary shipping lane through the strait, through which one-fifth of the world’s oil and gas supply normally passes.

Higher energy prices have raised fears that inflation could remain stubborn, prompting central banks to keep tightening policy. The European Central Bank raised borrowing costs last week. Markets expect the Federal Reserve to raise interest rates after its Wednesday meeting, while investors expect the Bank of England to hold rates on Thursday, The Guardian reported. Al Jazeera said markets also expect the Bank of Japan to raise rates after its policy meeting this week.

“Markets are starting the week on a defensive footing, with the combination of another escalation in the Middle East and increasingly hawkish central-bank expectations weighing on risk appetite,” said Daniela Hathorn, a senior market analyst at Capital.com.

Bond yields also rose outside the United States. Germany’s 10-year bond yield peaked at 3.554% on Monday, its highest since mid-2009, and stood at 3.547% on Tuesday, Al Jazeera reported. Japan’s 10-year government bond yield breached 3% for the second time this month, the highest rate in three decades. In Britain, 30-year government bond yields rose to their highest level since March 1998, according to The Guardian.

“Markets are likely to remain focused on the risk that higher crude oil prices could add to inflationary pressures and, in turn, push interest rates higher,” Yokoo Akihiko, an analyst at Mitsubishi UFJ Bank, said in a note seen by Reuters.

Chris Beauchamp of IG said oil markets were facing “their worst fears all at once – attacks on energy infrastructure, the closure of Hormuz and a breakdown in attempts to restart negotiations.” He added: “The major surprise is how calm markets remain in the face of all this, but if prices breach the March highs, things could get ugly very quickly.”