US Treasury Yields Climb to Two-Month High as Oil Rekindles Inflation Fears

US Treasury yields extended their advance on Tuesday, with long-dated bonds coming under renewed selling pressure as surging oil prices revived concerns that inflation could remain elevated ahead of next week's Federal Reserve meeting.

The 10-year Treasury yield briefly rose to 4.64%, its highest level since late May, before closing at 4.626%. The 30-year yield also climbed to 5.13%, remaining firmly above the key 5% level.

The latest move comes after last week's softer US inflation report had briefly eased expectations of further policy tightening.

However, the rebound in crude oil—driven by escalating tensions in the Middle East—has prompted investors to reassess the inflation outlook. Interest-rate futures now imply around a 22% chance of a Fed rate hike next week, with expectations for further tightening also edging higher.

As Izaac Brook, Rates Strategist at RBC Capital Markets, said:

"Today's move was largely driven by higher energy prices. Once the 10-year yield broke above 4.60%, light summer liquidity amplified the selloff."

Meanwhile, Christopher Hodge, Chief US Economist at Natixis, cautioned that while the Fed should focus on realised inflation data, uncertainty remains over how policymakers will respond if energy prices continue to climb.

From a technical perspective, momentum remains tilted to the upside.

The 10-year Treasury yield has reclaimed the 4.60% level, while the 30-year yield continues to hold above 5.0%. A sustained move higher could reinforce expectations that bond yields have not yet reached their peak, particularly if oil prices remain elevated heading into the Fed meeting.