US Treasury bonds declined on the 21st (US Eastern Time) with short-term maturities showing relative weakness, as the yield curve flattened in a bear flattening pattern. The 10-year Treasury yield rose 3.00 basis points to 4.6280% as of 3pm, while the 2-year yield climbed 4.90bp to 4.2640% and the 30-year yield increased 1.30bp to 5.1300%. The selloff was driven by surging international oil prices amid escalating US-Iran tensions, with Brent crude closing above $90 per barrel for the first time since the 11th of last month. Inflation concerns intensified as Houthi rebels declared a Red Sea blockade and at least four tankers carrying Saudi Arabian crude turned back from the Red Sea, prompting futures markets to price in a 24.1% probability of a Federal Reserve rate hike at next week's FOMC meeting on the 28th-29th.
Treasury Yields Rise Across Curve with Short-End Weakness
According to Yonhap Infomax's overseas interest rate intraday screen (screen number 6532), the 10-year Treasury yield traded at 4.6280% as of 3pm on the 21st (US Eastern Time) in the New York bond market, up 3.00bp from the previous trading day's 3pm reference price. The policy-sensitive 2-year yield rose 4.90bp to 4.2640% during the same period. The 30-year Treasury yield, the longest maturity, climbed 1.30bp to 5.1300%. The spread between 10-year and 2-year yields narrowed from 38.30bp on the previous trading day to 36.40bp. Treasury yields showed modest declines initially but began rising in earnest around the start of New York trading, with the 2-year yield's advance particularly pronounced.
![US 10-year Treasury yield intraday movement]()
Houthi Red Sea Blockade Drives Oil Above $90
Yemen's pro-Iran armed group Houthi rebels declared a Red Sea blockade on the previous day, and foreign media reported that at least four tankers loaded with Saudi Arabian crude turned back from the Red Sea. The Houthi rebels reportedly warned in emails sent to multiple global shipping companies on the previous day that "loading and unloading of cargo from vessels at all Saudi ports is prohibited." Brent crude September futures closed at $91.01 per barrel on the day, up 2.01% from the previous session. This marked the first time Brent crude closed above $90 on a settlement basis since the 11th of last month.
Trump Signals Response to Shipping Disruptions
US President Donald Trump met with Lebanese President Joseph Aoun at the White House on the day and, when asked about the Houthi rebels' Red Sea blockade, stated "if that happens, we will handle it," expressing his willingness to respond.
Fed Rate Hike Probability Climbs to 24.1%
Michael Lorizio, head of US rates and mortgage trading at Manulife Investment Management, noted that current energy prices are higher than at the time of the June FOMC, recalling that a majority of FOMC participants anticipated a rate increase within the year at that meeting. He stated, "Given the recalibration of oil and gas prices and the dovish shift since the last Federal Reserve meeting, we may need to reconsider some of that thinking." The 10-year and 30-year yields rose intraday to the mid-4.6% and mid-5.1% ranges respectively, recording their highest levels since late May. The 2-year yield clearly exceeded 4.20%.
![US 30-year Treasury yield intraday movement]()
US gasoline prices, which significantly impact consumer sentiment and inflation, rose slightly after crossing the psychological threshold of $4 per gallon on the previous day. According to the American Automobile Association (AAA), the national average retail gasoline price as of the day was $4.019 per gallon, the highest in about a month. According to CME FedWatch, the federal funds rate (FFR) futures market reflected a 24.1% probability of the Fed raising rates next week as of 3:38pm New York time, up from the mid-10% range on the previous trading day. The probability of a September rate increase rose from the low 60% range on the previous session to the high 60% range. The US Treasury is scheduled to auction $13 billion worth of 20-year bonds on the following day.
FAQ
What caused US Treasury yields to rise on the 21st?
US Treasury yields rose on the 21st (US Eastern Time) primarily due to surging oil prices driven by escalating US-Iran tensions and the Houthi rebels' Red Sea blockade declaration. Brent crude closed above $90 per barrel for the first time since the 11th of last month, intensifying inflation concerns and causing the 10-year Treasury yield to climb 3.00 basis points to 4.6280%.
How did the Fed rate hike probability change after the oil price surge?
According to CME FedWatch, the futures market increased the probability of a Federal Reserve rate hike at next week's FOMC meeting (28th-29th) from the mid-10% range to 24.1% as of 3:38pm New York time on the 21st. The probability of a September rate increase also rose from the low 60% range to the high 60% range.
