Treasury yields pushed to fresh multi-year highs as rising oil prices led traders to increase bets that the Federal Reserve could deliver a rate hike as soon as next week. Yields across the curve rose between 5 and 10 basis points, with the 30-year rate touching its highest level since 2007, while the 2-year yield broke above 4.5% for the first time since 2024.

Market pricing now shows roughly a 70% probability of a rate increase at the Fed's upcoming meeting, with a move fully priced in by October at the latest, a shift from previous expectations that pointed to December. The 10-year yield climbed as much as 9 basis points to 4.93%, the loftiest reading since November 2023.

Activity in the Treasury options market included a roughly $14 million position buying put options on 10-year note futures, wagering that the corresponding yield would rise to 5% by the November 20 expiration. Tony Farren, managing director of rates sales and trading at Mischler Financial Group, commented that higher crude prices feed into inflation, and once that effect starts seeping into the broader economy, it becomes difficult to contain. If inflation remains elevated, there is little room for yields to move lower.

The ongoing selloff pushed up the expected yield for the 30-year auction scheduled for 1 p.m. in New York. The sale will offer $22 billion in new 30-year debt, with an implied yield of approximately 5.35%, surpassing the awarded yields of every prior 30-year auction since 2001. Shortly after, the Treasury plans to buy back up to $6 billion in notes maturing in 10 to 20 years, an increase from the initially announced $2 billion.

The Treasury's surprising announcement on August 19 to expand the buyback program is aimed at curbing the upward drift in long-term yields.