5.03%: US 10-year Treasury Yields hit fresh highs in over 19 years

US 10-year Treasury Yields hit a fresh 19-year high at 5.03% amid higher Oil prices, hawkish Fed bets.
The Fed is almost certain to hike interest rates on Wednesday.
Market experts see the Fed delivering more interest rate hikes in the near term.

Sagar Dua FXStreet

United States (US) 10-year Treasury Yields have hit a fresh high of 5.03%, the level never seen in a little over 19 years. Higher yields on US bonds indicate rising interest obligations for the government, which generally leads to significant bond-buying operations by the administration. This scenario also diminishes the appeal of riskier assets.

Hot inflation expectations due to elevated oil prices, and fresh fears of a series of interest rate hikes by the Federal Reserve (Fed), are fuelling borrowing costs for the US government.

Oil prices have remained significantly higher in the past months since the onset of the Middle East war, which has de-anchored global inflation expectations. The WTI Oil trades close to $100 levels as concerns regarding prolonged energy supply disruption remain elevated.

Surging inflationary pressures worldwide have forced central banks to tighten their monetary conditions. This month, the European Central Bank (ECB) has already raised its policy rates by 25 basis points (bps).

The Federal Reserve (Fed) is also expected to break its five-meetings hold and hike interest rates by 25 bps to 3.75%-4.00% on Wednesday. Market experts have also started pricing in more rate hikes by the central bank.

Fed seen hiking as BNY flags limits to further tightening

Strategists at BNY expect the FOMC to “enact a 25bp rate hike this Wednesday, in line with implied market probabilities, which currently price over a 90% likelihood of such action.”

BNY adds that “while we expect a hike this week, and probably one more this year, we think the path to even higher policy rates is strewn with potential impediments to significantly tighter policy.” In their view, “the nearly 100bp of hikes (equivalent to four hikes of the standard 25bp increment) currently priced in will be realized,” but they caution that, although they are “not ready to see shorter-maturity yields fall any time soon,” these yields “may ultimately prove to be ahead of themselves.”

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

AUD/USD stays defensive below 0.7150 after Chinese data

AUD/USD remains on the back foot below 0.7150 in the Asian session on Tuesday, close to an over three-week low touched the previous day. US bond yields hold near multi-year highs ahead of the FOMC meeting and oil-driven inflation risks, supporting the US Dollar and weighing on the currency pair. Mixed Chinese activity data for August also fail to inspire the Aussie.

USD/JPY extends gains toward 155.00 amid USD resurgence

USD/JPY keeps pushing higher toward 155.00 early Tuesday, looking for more upside, as traders await the FOMC and BoJ meetings this week. Meanwhile, Fed rate-hike bets and oil-driven inflation risks keep US bond yields near multi-year highs, supporting the US Dollar and the pair. That said, a more hawkish repricing of the BoJ normalization path might continue to underpin the Japanese Yen and could limit USD/JPY's upside. .

Gold struggles below $4,300, near one-month low as USD sticks to gains ahead of Fed

Gold struggles to capitalize on its modest Asian session uptick, and remains close to a one-month low, which it touched the previous day. The commodity currently trades just below the $4,300 mark as traders move to the sidelines ahead of the crucial two-day FOMC policy meeting, starting later today.

Dogecoin clings to EMA support as recovery lacks conviction

Dogecoin (DOGE) hovers around $0.083 at the time of writing on Tuesday after finding support around the key support zone the previous day. Quiet institutional demand, along with mixed derivatives positioning, suggests fading interest in the dog-themed meme coin.

AI, markets and a more complicated world

The week started with upward pressure on energy prices, US 10-year yield breaching the 5% mark and very uncomfortable questions regarding AI, and this time, it was not about the circular deals, financing capabilities, investor greed, earnings, the impact of AI on different sectors and businesses, the parabolic rise in market prices, PE ratios and so on.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.