The U.S. 10-year Treasury yield briefly broke above 5% on Friday for the first time since 2024, after August inflation data hardened bets on an imminent Federal Reserve rate hike. The move capped a week of selling in Treasuries. Separately, Brent crude held firm near $109 a barrel after a weekly surge tied to Middle East supply disruptions.
The 10-year Treasury yield jumped from 4.942% to 5.005%, a 6.3 basis point move, immediately after the Labor Department released its August Consumer Price Index report. The two-year yield rose only marginally to 4.61%, while the 30-year long bond traded at 5.338%, showing the selling stayed concentrated in the 10-year maturity.
Hot CPI print lifts Fed rate-hike odds
August CPI held firm at 3.4% year-on-year, while core month-on-month CPI ticked up to 0.3%, beating consensus forecasts of 0.2%. That followed Thursday's Producer Price Index print of 5.4%, which the report says confirms energy input costs are rapidly passing through consumer supply chains.
Lewis Huang, an analyst at Bitget, said the reading gives the Fed room to look through the headline increase, leaving the September decision dependent on the broader balance of inflation, labor-market and financial conditions. Futures tracked by CME FedWatch showed bets for a 25-basis-point rate hike at the Fed's September 15-16 meeting jump to 88%, up from 71% earlier in the session. The repricing follows the European Central Bank's quarter-point increase to 2.50% on Thursday.
Oil surge adds to the pressure
Brent crude held firm near $109 a barrel, capping a weekly surge of nearly 13% after military strikes around the Strait of Hormuz and Houthi activity in the Red Sea restricted regional oil exports.
Why the 5% line matters
Crossing 5% resets discount models across risk assets, driving corporate refinancing costs higher and pushing mortgage rates toward multi-year peaks. Elevated risk-free returns compress the equity risk premium, making fixed income more competitive against stock dividend yields and growth equity multiples.
Holding above 5% effectively delivers passive monetary tightening for the Federal Reserve, raising real borrowing costs across consumer and commercial debt curves without requiring an additional rate hike.
Source: Investing.com
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