US Treasury yields rise for three consecutive days, reaching a two-month high as Middle East tensions and rate hike expectations jointly drive the upward momentum

⑴ The yield on the US 10-year Treasury rose to 4.64% on Wednesday, climbing for the third consecutive trading day and reaching a two-month high. Ongoing tensions in the Middle East have kept crude oil prices elevated, and upward pressure on energy costs continues to feed into inflation expectations.⑵ Although both June CPI and PPI data released last week came in below market expectations, both the US and Iran have indicated that the chances of resuming negotiations in the near future are low. The geopolitical impasse makes it difficult for supply-side disruptions to fade in the short term, and market concerns about recurring inflation have not subsided despite improvement in the monthly data.⑶ The Federal Reserve has entered its customary pre-meeting blackout period, and next week’s policy meeting is widely expected to keep the federal funds rate unchanged. However, expectations for further tightening this year persist. Traders are pricing in about a 60% probability of a rate hike at the September meeting, and uncertainty about the interest rate outlook will continue to support long-term yields.⑷ Yield increases have accumulated significantly in the short term, reflecting the combined effects of energy shocks, geopolitical risks, and policy uncertainty. If the situation in the Middle East fails to show signs of easing, US Treasury yields may have further room to rise in the near term.