Benchmark US government bond yield hits 19-year peak as oil prices surge

The 10-year US Treasury yield hit 5.02 percent on Tuesday for the first time since the 2007 global financial crisis.

The benchmark United States government bond rate has climbed to its highest level in 19 years as traders bet on a Federal Reserve interest rate hike following a new rise in oil prices.

On Tuesday, the 10-year US Treasury yield hit 5.02 percent, a level unseen since the 2007 global financial crisis.

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The 10-year Treasury benchmark price influences the lending rate for nearly every asset in US financial markets, including consumer debt and home mortgages.

Other global benchmark bonds have also reached multi-decade highs after the US and Iran escalated attacks in their more than six-month war last month, driving oil prices beyond $100 a barrel for the first time since May.

Germany’s 10-year bond yield, a benchmark for the European economy, peaked at 3.554 percent on Monday, its highest since mid-2009, and stood at 3.547 percent on Tuesday.

Japan’s 10-year government bond yield has breached 3 percent for the second time this month, the highest rate in three decades.

“Markets are likely to remain focused on the risk that higher crude oil prices could add to inflationary pressures and, in turn, push interest rates higher,” Yokoo Akihiko, an analyst at Mitsubishi UFJ Bank, said in a note seen by the Reuters news agency.

The price of oil has only continued to inch upwards as the US-Israel war on Iran shows no signs of resolving and energy facilities and shipping routes, including the Strait of Hormuz, continue to come under attack.

Last week, Yemen’s Iran-aligned Houthi rebels advanced their forces to the Bab al-Mandeb strait, a critical bypass for Saudi oil choked off at the Strait of Hormuz.

Days later, strikes suspected to have been launched by an Iran-aligned Iraqi militia temporarily disabled Saudi Arabia’s East-West pipeline, which carries oil to its Red Sea ports.

Last week, the European Central Bank raised interest rates to contain inflation. Markets expect the US Federal Reserve and the Bank of Japan to follow suit and raise their own rates after their respective policy meetings this week.

The rise in government bond yields is also being driven by competition from corporate bonds that are driving the artificial intelligence boom and concerns that governments are running unsustainable debts.