U.S. Treasury Yields Advance Amid Inflation Fears, Oil Surge, and Low Jobless Claims

U.S. Treasury yields advanced on Thursday as Brent crude oil's climb above $100 per barrel raised inflation fears, and as weekly claims for unemployment insurance tumbled below 200,000.

The yield on the 10-year U.S. Treasury note — the key benchmark for mortgage and auto loans and credit card debt — was last up more than 4 basis points at 4.705%, the highest since Jan. 15, 2025, before the start of President Donald Trump's second term.

The 2-year Treasury note yield, which more closely tracks short-term Federal Reserve interest rate policy, rose 6 basis points to 4.362%. The longer-dated 30-year Treasury bond yield was higher by more than 2 basis points, reaching 5.173%.

One basis point equals 0.01%, and yields and prices move inversely to one another.

Oil prices continued to climb on Thursday, with Brent crude futures on pace for their third-largest monthly gain in the past 10 years, following reports of Houthi rebel attacks on tankers off the Red Sea coast of Saudi Arabia, and renewed U.S. threats to escalate strikes against Iran.

Brent crude futures gained 7% to close at $100.69 a barrel, the highest since before the U.S. and Iran reached a tentative peace deal last month. U.S. West Texas Intermediate crude futures advanced 6% to $92.19 a barrel.

As inflation fears heightened, expectations that the Federal Reserve will raise interest rates increased as well, with fed funds futures traders pricing in an 82% chance that the central bank will hike at its September meeting, according to CME's FedWatch tool. That's a jump from 52% one week ago.

Elsewhere on the economic front, jobless claims for the week ended July 18 came in at 187,000, below the 212,000 that economists polled by Dow Jones were expecting. Investors will next look ahead to the latest S&P Global Flash U.S. purchasing managers index report due Friday, which measures the economic health of American manufacturing and services sectors.

"The economy may be heating up today, but the path ahead for the employment markets could still be rockier with the escalation of the war in the Middle East causing a u-turn in energy prices virtually overnight this week," said Chris Rupkey, FWDBONDS chief economist. "Half of Federal Reserve officials are concerned enough about the inflation risks to pencil in a rate hike this year, but they still need to keep an eye out for labor market risks where jobs are increasingly hard to get especially for recent graduates."

"The economy isn't out of the woods yet from the dangers posed to either growth or the affordability crisis and higher prices," he added.

Government bond yields also moved higher across Asia and Europe on Thursday. The yield on the U.K. 10-year government bond climbed above 5.1% as new prime minister Andy Burnham cut property taxes on hospitality venues, contributing to investor unease.

Burnham's 20% cut on business rates will cost roughly £100 million ($134 million) and aims to protect pubs, clubs and music venues from higher costs.