Treasury Yields Surge Past 5% as Oil Spikes and Rate Hike Bets Mount

U.S. Borrowing costs surged on Thursday as benchmark Treasury yields broke through the 5% barrier, driven by rising crude oil prices and growing expectations that the Federal Reserve will push interest rates higher. Bond yields, which move inversely to prices, spiked across all maturities as investors weighed renewed inflation risks against a deepening slump in the housing market.

The yield on the key 10-year U.S. Treasury note—a key benchmark for consumer credit including mortgages, auto loans, and credit cards—rose more than 13 basis points to reach 5.125%. Short-term debt felt even heavier pressure, with the 2-year Treasury note yield leaping over 15 basis points to 4.879%. At the longer end of the curve, the 30-year Treasury bond yield climbed 10 basis points to hit 5.449%.

Energy Spikes and Rate Hike Forecasts

A sudden jump in energy markets helped fuel the bond sell-off. Crude oil prices rallied after President Donald Trump remarked, “We don’t need a deal with Iran,” stoking fears that Middle East hostilities could drag on indefinitely. West Texas Intermediate futures surged more than 2% to settle at $88.74 per barrel, while international benchmark Brent crude advanced over 3% to close at $95.82 per barrel.

At the same time, Wall Street is re-evaluating the path of monetary policy following Tuesday’s hotter-than-expected consumer price index release. On Wednesday, Goldman Sachs updated its economic forecast to include an additional quarter percentage point Fed rate hike in March.

According to the CME Group’s FedWatch tool, financial markets are currently pricing in a 100% probability of a rate increase at the Fed’s December meeting, with a 13% chance of a larger half percentage point bump.

Housing Slump Deepens as Wholesale Data Looms

The relentless increase in interest rates continues to take a severe toll on real estate. Data released Thursday by the National Association of Realtors revealed that existing home sales plummeted last month to their lowest level in more than 16 years.

“Fed officials want to push rates even higher to fight inflation, but all this is doing is pushing the housing correction down into the depths of depression,” said Chris Rupkey, chief economist at FWDBONDS. “It’s dark out there with no homebuyers anywhere to be found.”

Market participants are now turning their attention to Friday’s upcoming inflation report. The October producer price index, which measures wholesale price pressures, is expected to show a 0.4% increase for the month, down significantly from the 1.3% surge recorded in September.