Treasury yields rise as Fed rate hike expectations grow ahead of June inflation print

U.S. Treasury yields rose again on Tuesday as traders' expectations for Federal Reserve interest rate hikes grow amid an increasingly fractured Middle East ceasefire.

It comes ahead of Fed chair Kevin Warsh's debut testimony before Congress later this week and inflation data for June, due later in the session.

The key 10-year Treasury yield — the main benchmark for U.S. government borrowing — was more than 1 basis point higher in early trade, at 4.6278% by 3:45 a.m. E.T.

Yields on the 2-year Treasury note, which are more sensitive to short-term Federal Reserve rate policy, rose by more than 2 basis points, at 4.2900%. The 30-year bond yield, meanwhile, rose 1 basis point to reach 5.1093%.

One basis point equals 0.01%, or 1/100th of 1%, and yields and prices move inversely to one another.

Treasury yields increased across the curve on Monday, with the 10-year yield jumping 4 basis points and the 2-year surging more than 6 basis points, after President Donald Trump announced plans to blockade Iranian ports and impose fees of 20% on cargo passing through the Strait of Hormuz.

With oil prices soaring, investor expectations for two Fed rate rises by April next year are gathering pace, according to the CME'S FedWatch tool. Traders now see a 42.2% chance of a July 29 rate hike — up from 26.7% a week ago — and a 33.6% chance that rates rise again by April. West Texas Intermediate futures were last 2.84% higher at $80.36 a barrel, while Brent crude — the international oil benchmark — jumped 3.12% to $85.90.

Traders are awaiting Fed chair Warsh's debut testimony before Congress this week on the state of the U.S. economy. Warsh will appear before the House Financial Services Committee later Tuesday, and the Senate Banking Committee on Wednesday.

Investors will also be closely monitoring the latest inflation data print for June, due later Tuesday. Annual inflation, which reached 4.2% in May, is expected to ease to 3.8%, according to consensus forecasts. Year-on-year core inflation — which strips out volatile food and energy costs — is predicted to hold steady at 2.9%.