US Treasury yields hit highest levels since March as oil surge clouds Fed outlook

US Treasury yields rose to their highest levels since March on Wednesday as surging oil prices weakened expectations that the Federal Reserve will cut interest rates this year.

The selloff in US government bonds came ahead of the Fed’s policy decision, with markets widely expecting the central bank to keep rates unchanged.

Yields across maturities increased by 4 to 6 basis points, led by shorter-dated notes that are more sensitive to Fed policy expectations.

The yield on the 2-year Treasury note climbed as much as 6 basis points to nearly 3.90%, the highest since March 27, while the 30-year bond yield approached 5%, a level last seen in July.

The moves reflected a sharp repricing in interest-rate markets as traders largely abandoned expectations for a rate cut in 2026 and began pricing in the possibility that the Fed’s next move could be a rate increase in the first half of 2027.

The Fed’s target range for overnight lending rates has stood at 3.5%-3.75% since December.

The December 2026 contract tied to Fed policy expectations rose to around 3.62%, implying only a minimal chance of a rate cut, while contracts expiring in the first half of 2027 moved above the current effective rate, signaling some probability of a hike.

Oil prices have surged since the US attack on Iran in late February, fueling inflation concerns through higher gasoline costs and broader energy-price pressures.

The increase has also weighed on bond markets globally, with European government bond yields also rising on Wednesday.