Inflation and Strong Labor Market Fuel Fed Rate Hike Expectations, US Bond Prices Fall for Fourth Straight Day

Driven by rising international crude oil prices and a robust US labor market, US Treasury bond prices declined for the fourth consecutive trading day on the 23rd, with yields across various maturities climbing to their highest levels since early 2025. Market bets on the Federal Reserve restarting its monetary tightening cycle have intensified significantly, with traders widely expecting the Fed to announce a rate hike as early as its upcoming meeting.

Secondary market trading data showed that late in the afternoon of the 23rd Eastern Time, the yield on the 2-year Treasury note rose 5.1 basis points to 4.3491%; the 5-year yield increased 5 basis points to 4.4539%; the 10-year yield climbed 4.3 basis points to 4.6972%; and the 30-year yield gained 2.2 basis points to 5.1669%. Notably, yields on 2- to 10-year notes briefly surged to their highest levels since the first quarter of 2025 during the session.

Analysts point to the oil price rebound triggered by geopolitical conflicts and unexpectedly strong employment data as the primary drivers pushing up bond yields. Data released by the US Department of Labor on the same day showed that initial jobless claims last week fell to their lowest level in half a century, indicating resilience in the labor market and further raising market expectations for inflation.

As a result, pricing in the interest rate derivatives market for the Fed's monetary policy path has shifted markedly. Traders have significantly increased their bets on future Fed rate hikes, with current market pricing reflecting the possibility of at least two 25-basis-point rate increases by mid-2027. For the upcoming monetary policy meeting, the probability of the Fed taking tightening action is now seen as substantially higher.

Additionally, the auction of 10-year Treasury Inflation-Protected Securities (TIPS) on the same day saw weaker-than-expected demand, with the awarded yield exceeding levels before the auction, reflecting pressure on secondary market willingness to absorb Treasuries. Large capital flows in the options market also indicate that some institutional investors are increasing their hedging positions against potential future market volatility.