Yields on US government bonds rise as traders expect Fed rate hike

The US bond market just flashed a signal that has Wall Street’s full attention. Treasury yields surged to levels not seen in years on September 10, driven by a potent combination of surging oil prices and fresh inflation data that landed hotter than expected.

Traders responded by dramatically raising their bets that the Federal Reserve will hike interest rates at its September 15-16 meeting. The probability of a 25 basis point increase jumped to roughly 70%, up from around 60% before the latest market moves.

The numbers tell the story

The 10-year Treasury yield, the benchmark that influences everything from mortgage rates to corporate borrowing costs, climbed above 4.9%. Intraday, it touched as high as 4.92-4.93%, marking its highest level since late 2023.

The 30-year yield was even more dramatic, reaching approximately 5.35%. That’s a number bond traders haven’t seen since 2007.

On the shorter end of the curve, the 2-year yield broke above 4.5%, hitting its highest point since early 2024.

Meanwhile, oil prices added fuel to the fire. West Texas Intermediate crude crossed $100 per barrel for the first time since May, while Brent crude traded in the $105-107 range. Escalating tensions between the US and Iran, particularly concerns about potential supply disruptions in the Strait of Hormuz, drove the spike.

Inflation data confirms the worry

The timing of the August Producer Price Index report couldn’t have been worse for anyone hoping yields would cool off. PPI rose 0.4% month-over-month, slightly above expectations. The main culprit: energy prices, which jumped 4.2% in the month.

Treasury Secretary Scott Bessent’s administration attempted to calm things down through bond buyback programs, essentially stepping in as a buyer to prevent yields from spiraling further. The effort fell flat. Market forces overwhelmed the intervention.

What a rate hike would mean

If the Fed does raise rates next week, it would mark a significant reversal in the trajectory many investors had been expecting. For much of 2026, the consensus leaned toward rate cuts, not hikes.

All eyes now shift to the FOMC meeting on September 15-16. The bond market has already placed its bet. Whether the Fed follows through will determine whether current yield levels represent a peak or just a waypoint on the path higher.

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