US 10-Year Treasury Yield nears 5% after Fed rate hike, Middle East tensions raise inflation fears

United States (US) Treasury Yields erase an earlier decline during the early European session on Thursday. Federal Reserve (Fed) interest rate hike and escalating geopolitical tensions in the Middle East could lift US Treasury Yields in the near term. 

Two-year US Treasury yields, the most sensitive to the Fed’s policy, rebounds to trade at 4.717% after the Fed policy meeting. Meanwhile, the benchmark 10-year US Treasury yield note reverse an earlier decline to 5%. The yield hit its highest since 2007, reaching 5.041%, in the previous session. 

The US central bank raised its benchmark interest rate by a quarter-percentage point at its September meeting on Wednesday, marking its first rate hike since July 2023. During the press conference, Fed Chairman Kevin Warsh delivered hawkish signals, warning of persistent inflation risks and signaling further increases in borrowing costs in coming months.

A prolonged conflict in the Middle East, particularly tensions involving Iran, has fueled concerns about higher energy prices and inflation, putting upward pressure on Treasury yields. On Wednesday, Iran vowed to fight on “until the last drop of blood” after threatening the US that peace talks will not resume until all of its conditions are met, per Reuters.