Brent crude tops $100, US 10-year yield nears 5% as Iran tensions escalate
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As summer ends, hopes for a swift resolution to the US-Iran conflict have faded, pushing oil prices back above $100 per barrel for the first time since July. Global borrowing costs are surging, with the US 10-year Treasury yield approaching 5%, as markets await today's CPI data and next week's Federal Reserve meeting. The US announced it destroyed five Iranian tankers, while Iran's Revolutionary Guard launched ballistic missiles at bases in Jordan and attacked vessels near the Strait of Hormuz. Houthi forces seized the Yemeni port of Mocha, threatening the Bab el-Mandeb Strait. Brent crude closed up 6% to nearly $108. The US 10-year yield rose above 4.9%. Treasury Secretary Bessent's bond repurchase plan disappointed investors. The Wall Street Journal reported that senior White House advisers privately warned Trump the conflict could last until the end of his term. Trump proposed a $5,000 'Trump Dividend' if Republicans control Congress. Germany's AfD party came first in Saxony-Anhalt. The US announced import bans on Canadian goods. The Japanese yen hit a seven-month high. Markets price in over 65% probability of a 25-basis-point Fed rate hike next week.
Source report
Reuters — As summer ends and hopes for a swift resolution to the US-Iran conflict fade, oil prices have climbed back above $100 per barrel for the first time since July. Global borrowing costs are surging again, with the US 10-year Treasury yield approaching 5%, as markets anxiously await today's CPI data and next week's Federal Reserve meeting.
Oil Prices and Geopolitical Tensions
In early summer, Tehran and Washington reached a memorandum of understanding, preparing to reopen the Strait of Hormuz, which led to a rapid drop in oil prices. However, optimism has now dissipated.
- On Tuesday, the US announced it had destroyed five Iranian tankers.
- Iran's Revolutionary Guard launched ballistic missiles at bases in Jordan and attacked ten vessels near the Strait of Hormuz.
- On Thursday, Houthi forces seized the Yemeni port of Mocha, threatening the Bab el-Mandeb Strait.
Global oil prices broke through $100 per barrel on Wednesday, with Brent crude closing up 6% on Thursday to nearly $108.
Bond Market Impact
Soaring energy prices have pushed inflation expectations higher, driving:
- US 10-year Treasury yield above 4.9%
- 30-year yield past 5.38%
- 2-year yield to 4.6%
US Treasury Secretary Bessent's plan to repurchase long-term bonds was limited in scale, disappointing investors. Dynamics in the energy market may continue to impact bond markets, with supply uncertainties and concerns over the conflict's duration creating a risk premium.
White House and Political Developments
The Wall Street Journal reported that senior White House advisers privately warned Trump that the conflict could last until the end of his term. On Wednesday, Trump stated he expected the war to end after the November midterm elections.
The Republican Party's first midterm convention kicked off on Wednesday, where Trump proposed issuing a $5,000 "Trump Dividend" to every American adult if Republicans control both the Senate and the House — a measure that could cost more than $1 trillion.
Germany's Alternative for Germany (AfD) party came first in the Saxony-Anhalt state election, marking the first time since World War II that a far-right party has come so close to holding state-level power.
Trade and Currency
On Tuesday, the US announced import bans on Canadian goods, including alcohol, motorcycles, and dairy products, effective September 29.
The Japanese yen rose to 152.89 on Tuesday, hitting a seven-month high. Bessent warned investors not to bet against US intervention.
Central Bank Outlook
Today's August US CPI data may determine whether the Federal Reserve raises rates next week, with markets pricing in a probability of over 65% for a 25-basis-point hike. The European Central Bank already raised rates to 2.50% on Thursday.
Economies across multiple countries globally are overheating, and fiscal policy is struggling to cool them down, making rate hikes potentially the only option.
Source: Reuters
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