0946 GMT - U.S. Treasury yields have risen in recent months, but the drivers have shifted, Capital Economics analysts write in a note. The sell-off earlier in the year initially reflected higher term premia and concerns over fiscal sustainability, before rising oil prices fueled expectations for higher inflation and interest rates from July, they say. More recently, however, 10-year yields have continued to rise even as oil prices have flattened, which suggests term premia are again driving the move. The markets may be overpricing the extent of future Fed tightening, with investors pricing at least three 25bp hikes over the next year--compared with its previous forecast for two--taking the Fed Funds target to 4.25% to 4.50%. Still, fiscal risks could keep term premia elevated, leaving the outlook for longer-dated treasuries fragile.
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