(Bloomberg) — Treasuries fell after reports suggesting the Middle East war is heating up lifted oil prices.
The selloff lifted yields across maturities to session highs, with short-term tenors rising most. The two-year note’s climbed as much as five basis points to 4.83%, the highest level in a week. The US dollar strengthened.
After having been moribund for much of the session, Treasuries were hit at around 2:45 p.m. New York time, concurrently with US stock indexes, as West Texas Intermediate crude oil futures jumped to about $98.50 a barrel from $97.
The move appeared to have been touched off by a Reuters report that the US — which started a war with Iran in February — was preparing to order some staff to leave embassies in the Persian Gulf. It faded after US officials said the order was limited to Saudi Arabia.
“The Iran risk has never really gone away fully,” said John Briggs, head of US rates strategy at Natixis North America. “If concerns over re-escalation return, then global yields in general could face renewed pressure due to inflation risks and central bank pricing potentially rising.”
Rising oil prices since the war began re-ignited inflation globally, prompting the Federal Reserve and other central banks to raise interest rates.
US government bond yields remain near multiyear highs reached early this month in anticipation of strong economic performance, mounting debt levels and additional Fed rate hikes. Fed policymakers are in a self-imposed communications blackout period around their next rate decision on Oct. 28 — which traders give a roughly 20% chance of resulting in an increase.
An auction of 20-year Treasury bonds Wednesday drew the highest yield for a comparable sale in the period since the US resumed selling them in May 2020.
Treasury yields also faced upward pressure from gains for US stocks, which faded briefly after the Reuters report.
In the past two weeks, steep declines for shares of US companies offering exposure to capital spending on artificial intelligence infrastructure sowed doubt about its profitability. The prospect of an economic slowdown drove investors into bonds even as oil rose further, approaching the high end of its range since February.
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