The benchmark Treasury yield rose above 5 percent on Sept. 14 as investors priced in a Fed rate hike this week following a jump in oil prices and inflation fears.
The benchmark yield rose as high as 5.01 percent, the highest level since October 2023, according to market data.
Treasury bond yields represent the return that investors receive for lending to the U.S. government over different periods.
They move in the opposite direction of prices, meaning that higher yields usually reflect falling bond prices or investors demanding a better return to buy the debt.
Mohamed El-Erian, economist and Allianz adviser, said in a Sept. 14 post on X that with U.S. 10-year government bond yields crossing the 5 percent threshold, “today’s move up is even more dramatic in higher-beta G7 sovereign bonds like UK gilts.”
Economist Peter Schiff said in a Sept. 14 post on X: “Don’t be fooled into thinking this is the top. It’s more likely just a launching pad to 6 percent and beyond.”
Schiff has previously warned that the 2008 crisis was “just the prelude to a larger sovereign debt crisis in the United States that may lead to a collapse of the U.S. dollar.”
In a Sept. 10 note, Capital Economics’ John Higgins, chief economic adviser for financial markets, said an oil price-driven sell-off on the day had pushed the 10-year Treasury yield to almost 5 percent, a level that some view as a threshold above which markets could go into “meltdown.”
“While we aren’t convinced that 5 percent is that ‘magic’ number, higher Treasury yields would certainly pose a risk to the sustainability of the [United States’] public finances as well as threaten equities,” he wrote.
The Federal Reserve Board will decide whether to raise rates at the board’s next policy meeting on Sept. 15 and Sept. 16.
At its last meeting at the end of July, it decided to maintain the target range for the federal funds rate at 3.5 percent to 3.75 percent, approved by a 9–3 vote.
As of Sept. 11, the CME Group FedWatch tool assigned a 90.3 percent probability to a 25-basis-point rate hike, up from a 59.4 percent probability a week earlier.
The Labor Department released its consumer price index on Sept. 11, showing that prices increased last month, mainly because of higher gasoline prices.
In August, consumer prices rose by 0.4 percent, after increasing by 0.1 percent in July. Gasoline jumped by 3.9 percent and accounted for more than one-third of that monthly increase.
Energy prices as a whole, gasoline, electricity, home gas, and fuel oil, rose by 2.1 percent in August.
Housing costs rose by 0.3 percent. Food prices increased by 0.1 percent. Food was up by 2.7 percent over the year.
Energy was up by 16.3 percent over the year.
ING commodities strategists Warren Patterson and Ewa Manthey wrote in a commentary on Sept. 14 that oil prices are trading stronger as Saudi Arabia’s East-West Pipeline shutdown, coming on the heels of last week’s attacks, exacerbates supply concerns.
They wrote that following last week’s developments, it was “not surprising” that oil prices were trading higher as of Sept. 14, with ICE Brent up by about 2.95 percent.
Saudi Arabia on Sept. 11 announced that it shut down its East-West Pipeline “as a precaution” after several attacks were reported a day earlier.
The Saudi Ministry of Energy said on social media that the critical oil pipeline came under attack on Sept. 10, resulting in injuries.
ING said that the Saudis have shut down an oil pipeline that can carry about 7 million barrels of oil per day.
“It’s unclear how severe any potential damage is, or how long it will be out of action. Clearly, the recent escalation poses risks to our forecast, pushing us closer to our more pessimistic scenario,” ING said.
“For now, we’re sticking with our base case of Brent averaging $80 [per barrel] in 4Q26. The situation is fluid as we continue to see sizeable volumes of oil still moving through the Strait of Hormuz.”
Jack Phillips and Reuters contributed to this report.
