The yield on the 2-year US Treasury note has climbed to its highest level in over 16 months; renewed tensions in Iran have driven up oil prices, fueling market speculation that the Federal Reserve will tighten monetary policy to curb inflationary pressures.

The yield briefly increased by 3 basis points to reach 4.24%, marking its highest point since February 2025. Concurrently, the yield on the 10-year Treasury note rose by 2 basis points to 4.58%.

The rise in yields reflects growing market expectations that the Federal Reserve will implement interest rate hikes sooner than previously anticipated to counteract price pressures stemming from a rebound in global energy costs. Overnight index swap (OIS) contracts are now pricing in the next rate increase for October, a shift from expectations just a week ago that pointed to December.