The yield on the benchmark 10-year US Treasury note rose nine basis points to 4.55% this week, its highest level in a year, as investors repriced the path of Federal Reserve policy.
The move reflected a sharp shift in rate expectations. Traders now put the odds of a Federal Reserve interest-rate increase in 2026 at about 45%, according to the CME FedWatch tool, with a single hike to a range of 3.75% to 4% the most likely scenario. A month ago, markets saw only a 1% chance of any hike this year.
The repricing has been driven by the war with Iran and the effective closure of the Strait of Hormuz, which have kept oil prices elevated and raised the risk that inflation remains stubbornly high.
The bond-market sell-off coincided with the end of Jerome Powell’s term as Fed chair, with Kevin Warsh preparing to take over. Investors are watching for any change in tone from the incoming chair.
Higher yields weigh on rate-sensitive sectors, and technology shares pulled back as borrowing-cost expectations rose. Rising yields also lift the cost of mortgages and corporate debt.
Equities nonetheless proved resilient: the S&P 500 closed at a record 7,501.24 on Thursday, supported by strong corporate earnings even as the rate outlook turned less favourable.