Oil above $105 has bond traders pricing four more Fed hikes by next summer

Measured from 3.97%, where it stood before the US and Israel attacked Iran, the 10-year yield has risen 121 basis points ^[2][1]. About 30 of those came in two sessions, including the biggest one-day jump since April 9, 2025, the "Liberation Day" session ^[3]. Two days produced roughly a quarter of the whole move ^[2].

According to Cryptopolitan, the climb sped up once the conflict pushed oil higher and brought inflation fears back ^[2]. The same account names a second pressure on long maturities. Washington must sell large amounts of debt to fund the deficit, and when buyers will not absorb the extra Treasurys at existing prices, yields rise ^[14].

US consumers now expect annual inflation of 4.6%, the third-highest reading in a year ^[15], and Cryptopolitan's own outlook is 3% to 4% or more until mid-2027 ^[16]. Set the 10-year against the consumer figure (a crude pairing of a household survey with a ten-year bond) and the margin over expected inflation is 0.58 percentage points ^[7].

The Fed side is stranger. For months markets declined to price any hikes because the new chair, Kevin Warsh, had been appointed by Donald Trump, who wanted lower rates ^[11]. The committee then hiked with no dissent and said "The Committee will deliver price stability" ^[12]. Bond prices trade as if that first move should have been 50 basis points ^[7]. If the priced path is delivered, tightening from the hike eight days ago through next summer comes to about 125 basis points ^[4].

Six months ago the average 30-year mortgage rate was about 5.95% ^[5]. On a standard 30-year amortization, the monthly payment at today's 7.45% is roughly $696 per $100,000 borrowed ^[6]. At 5.95% it was about $596, so the same loan costs about 17% more each month ^[6]. Long-term mortgage rates crossed 7% for the first time since early 2025 on the way up ^[9].

A cooling war and cheaper oil would unwind the inflation part of the move and take much of the hike pricing with it, though the deficit issuance would stay ^[2][14]. Delivery of the priced hikes would lift short-term rates by about another point ^[6], and the long end could steady. The worst outcome for borrowers is a chair appointed to cut who does less than the curve prices while consumers expect 4.6% ^[11][15]. Long yields would then have further to rise.

I think the priced hikes are the better planning base through next summer. A committee that voted without dissent has said what it intends, and bond prices say it did too little ^[5][7]. The counter-thesis is that most of the 121 basis points is oil, and an oil reversal would take the priced hikes out about as fast as it put them in ^[1].