US treasury yields hit 18-month high amid elevated crude oil prices, spooking equity investors

Crude oil prices have soared over 15% this week, as Middle East tensions escalate further. The WTI crude oil price surged past $91 per barrel, and the Brent crude oil price crossed $100 per barrel mark again at 1.5 months high. The elevated crude oil prices have also brought inflation fears among investors.

The US equity markets also looked rattled with inflation fears and anxiety over excessive AI infrastructure spending. At the time of writing, the tech-heavy NASDAQ 100 index plunged 600 points or 2.3%, the Dow Jones fell, and the S&P 500 fell over 1%.

Meanwhile, the real worries stems from treasury yields, which hit 18-month high levels on Thursday. The US 10Y yields crossed 4.71%, last seen in January 2025. The long-term US 30Y yields have also jumped to 5.19% on Thursday. Until now, investors shrugged off worries of elevated crude oil prices. However, a sharp spike in yields has once again brought back fears of sticky inflation and faster-than-expected rate hikes.

Federal Reserve, in its latest policy stance have maintained the status ,quo and the early projections for the rate trajectory indicated of one rate cut in December 2026. In the current scenario, higher and persistent crude oil prices could force the Federal Reserve to change its stance.

Rising US Treasury yields also spread fear in emerging equity markets as institutional investors, hedge funds could intensify selling in overvalued equity markets and bring back the capital to safer government bonds.

Meanwhile, JP Morgan CEO Jamie Dimon earlier on Monday warned investors on betting in long dated government bonds. He said, “rising government and persistent fiscal deficits across the US and Europe could keep the interest rates higher for longer. He says, the US debt-to-GDP has surpassed 100%, meaning, government’s larger share of spending could go in servicing mounting debt and renewed pressure from bond investors.