Treasury Yields Rise as Inflation and Oil Prices Pressure Markets

This morning (9/24 at 7:40 AM), the 10-year Treasury yield has continued to move higher, reaching 5.125%, while the 30-year Treasury yield is 5.434%. We have not seen bond yields this high in over 20 years, and there are a number of contributing factors.

First, inflation never really went away. It has only been exacerbated by the continuing military action in Iran and the corresponding impact on oil prices. West Texas Intermediate crude is trading at $93.37 this morning, up more than $1 since yesterday but still below $100.

After a rough day yesterday, stocks are looking at a pressured open, with Dow futures down 0.35%, the S&P down 0.49%, and the NASDAQ indicating an open down 0.89%. The Fed is signaling the likelihood of an additional rate increase because this stubborn inflation may require a cooling of the economy to bring it down.

It is important to recognize that a peace agreement in Iran could cause a near-immediate drop in oil prices. While that would not translate quickly into the broader economy, it may be enough to signal easing pressure on overall inflation and could move the Fed back to a neutral stance.

Given the potential for increased volatility due to the election, this is an environment that calls for patience. With conditions changing quickly, it may be foolhardy to try to outthink the next cards to turn over. I am not sure it is actually a Chinese proverb, but the supposed curse “May you live in interesting times” has been repeated so often that it may describe where we find ourselves now. Stay tuned.

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