U.S. Treasury bond markets continued to ratchet up tension in global finance on Tuesday, with traders watching developments in the Gulf region, a key inflation report, and testimony from new Federal Reserve Chairman Kevin Warsh as yields hit multiyear highs.
Benchmark 10-year Treasuries have risen nearly 20 basis points since the start of the month, and were last marked at 4.621%, the highest since reaching 4.66% on May 19.
The gains in crude oil prices -- and their immediate impact on inflation metrics -- is a crucial aspect to the move, as is the hawkish tone heard recently from Fed officials and the lack of definitive guidance under the new leadership of Warsh.
Interest-rate sensitive 2-year notes, meanwhile, have jumped nearly 18 basis points since the end of June, and were last pegged at 4.279% -- the highest in 16 months -- as traders price bets that the Fed will likely lift interest rates over the coming months.
The CME Group's FedWatch tool suggests the odds of a hike at the central bank's next policy meeting, ending on July 29, have risen to around 42%, up from just 8% a month ago. Traders are also pricing in the chances of a hike in September at around 75%.
Those odds were boosted late Monday by comments from Federal Reserve Governor Christopher Waller, who told the New York Association for Business Economics that the central bank's monetary policy is "at a crossroads."
Rate hikes could come in "in the near term," if inflation pressures don't start moving toward the Fed's 2% target, he said. Adding that more data suggesting faster price gains could be treated as "signal, not noise" for the central bank's Open Markets Committee.
"There is still a credible case for inflation to begin to fall back to our 2% goal with policy at its current setting," Waller said. "But I am concerned about the equally plausible case that data in the coming weeks will show that inflation will remain at its elevated level or even trend higher, requiring tighter monetary policy in the near term."
That has traders watching today's June inflation print from the Bureau of Labor Statistics with the sharpest scrutiny in months, particularly now crude prices are back on the march following the escalation of hostilities in the Gulf region.
Investors are looking for a headline reading of 3.8%, down from the 2023 high of 4.2% published in May, with core prices holding at 2.9%.
But those numbers are likely to head in the opposite direction over the summer as crude prices rise to the highest levels in more than a month. Brent contracts for September rose 4.1% to $86.73 a barrel on Tuesday as President Donald Trump stepped-up attacks on Iranian targets, vowing to take complete control of the Strait of Hormuz and charge a 20% user fee on shipping traffic through the vital waterway.
Both of those topics, as well as the relentless climb in Treasury yields and the multiyear highs in recent New York Fed inflation forecasts, will likely form a host of questions presented to Warsh when he faces the House Financial Services Committee later Tuesday morning.
However, markets aren't expecting any detailed answers from the new Fed chairman, who has vowed to keep his rate-setting plans a guarded secret based on incoming data and internal debate, not market pressures.
It's unclear whether Warsh will have anything material to say about this as he testifies before the House Financial Services Committee on Tuesday, " said ING's regional head of Americas research Padhraic Garvey. "Unlikely, one would have thought, given his preference for no forward guidance. But he could, if he chooses, emphasize the tameness of inflation expectations."
That might be the most that markets can expect, but it may not be enough to hold back a bond market that could test the 5% level on 10-year notes before the end of the summer.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 14, 2026 07:37 ET (11:37 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments