Oil crosses $100/bbl, US 10-year yield hits new high as inflation fears rise

Oil prices climbed above $100 per barrel on Wednesday as geopolitical tensions between Washington and Tehran intensified, with strikes on ships and military bases escalating. This rally rekindled inflation fears in the US and India, causing both countries' government bond yields to climb. In India, foreign investors began selling bonds after two months of buying, pushing the 6.94% benchmark 2036 yield to 6.9568%. Debendra Kumar Dash of AU Small Finance Bank warned that sustaining oil prices above $100 could pressure the Indian government's finances. Simultaneously, US Treasury yields advanced, with the 10-year benchmark moving above 4.8%, its highest level since late 2023. Interest-rate futures now assign roughly a 60% probability to a quarter-point rate increase at the Federal Reserve meeting on September 15-16. This represents a sharp shift from earlier trader expectations that the central bank would leave rates unchanged. While a majority of economists still expect the Fed to hold its target range, confidence in that forecast has weakened following the oil surge and supply disruption fears across the Gulf.