Treasury yields rise as Fed rate hike expectations grow ahead of June inflation print

• Trader expectations for Fed rate hikes intensified, with the probability of a July 29 rate increase rising to 42.2% from 26.7% a week earlier, and a 33.6% chance of another hike by April
• Treasury yields surged following President Trump's announcement of plans to blockade Iranian ports and impose 20% fees on cargo passing through the Strait of Hormuz, pushing oil prices up over 2.8%
• June inflation data expected to show annual inflation easing to 3.8% from 4.2% in May, while core inflation is forecast to hold steady at 2.9%

Summary

Market Movement:

U.S. Treasury yields rose Tuesday as Federal Reserve rate hike expectations intensified. The 10-year yield climbed over 1 basis point to 4.6278%, while the 2-year note—more sensitive to Fed policy—jumped more than 2 basis points to 4.2900%. The 30-year yield increased 1 basis point to 5.1093%. This follows Monday's gains when the 10-year surged 4 basis points and the 2-year jumped over 6 basis points.

Key Drivers:

Yields rose amid Middle East tensions after President Trump announced plans to blockade Iranian ports and impose 20% fees on cargo passing through key waterways. Oil prices reacted sharply, with WTI crude rising 2.84% to $80.36 per barrel and Brent crude jumping 3.12% to $85.90.

Fed Rate Expectations:

According to CME's FedWatch Tool, traders now price in a 42.2% probability of a July 29 rate hike—up significantly from 26.7% a week earlier. The likelihood of a second rate increase by April next year stands at 33.6%, with expectations for two total rate hikes gaining momentum.

Key Events Ahead:

Investors await Fed Chair Kevin Warsh's debut Congressional testimony this week, appearing before the House Financial Services Committee Tuesday and Senate Banking Committee Wednesday. June inflation data is also due Tuesday, with annual inflation expected to decline to 3.8% from May's 4.2%. Core inflation (excluding food and energy) is forecast to hold steady at 2.9%.

Market Implications:

Rising yields reflect increased hawkish Fed expectations driven by geopolitical risks and potential inflationary pressures from Middle East disruptions affecting oil supply.