Treasury yields hit 19-year high as oil tops $107 on Saudi strikes

The 10-year US Treasury yield climbed to 5.02 percent on Tuesday, the highest level since 2007, as surging oil prices fueled expectations that the Federal Reserve will raise interest rates again. Brent crude futures pushed above 107 dollars a barrel after fresh attacks on Saudi energy infrastructure and ongoing clashes involving Iran in the Gulf.

Traders linked the move directly to higher energy costs. Oil has climbed steadily since Saudi Arabia shut its East-West pipeline following drone strikes, and after Houthi forces launched ballistic missiles and drones into Saudi territory. Iran reported striking vessels and claimed to have downed an American drone near the Strait of Hormuz. Those disruptions have tightened global supply at a moment when markets were already watching every development in the region.

The higher oil prices are feeding straight into inflation readings that remain well above the Fed's 2 percent target. Markets now price in a greater than 90 percent chance of a quarter-point rate increase at this week's policy meeting. The 30-year Treasury yield also rose, reaching 5.368 percent, while shorter-term notes moved higher as well. Those shifts affect borrowing costs for mortgages, car loans, and business credit across the economy.

Fund managers surveyed by Bank of America reported pulling back from stocks, with the share of those overweight equities dropping to 49 percent. Cash holdings rose, and a disorderly bond selloff ranked as the top perceived risk. Stock futures opened lower ahead of the Fed announcement, reflecting the same concerns.

The tight correlation between oil and Treasury yields has reached its strongest level in seven years. Analysts note that every additional dollar in crude now transmits more quickly into higher inflation expectations and tighter financial conditions. That dynamic leaves less room for the Fed to ease policy even if other parts of the economy slow.

For American households, the effects are immediate. Mortgage rates have already climbed in line with the 10-year yield, and energy costs are rising at the pump. The combination threatens to extend the period of elevated borrowing expenses that has already weighed on homebuyers and small businesses.

Washington's continued involvement in the Middle East conflicts remains the underlying driver. Each escalation pushes energy prices higher and adds pressure on domestic finances, yet the costs fall most heavily on families far from the decision-making centers. The Fed meeting this week will show whether policymakers intend to respond with further rate increases that amplify those pressures.