10-year US Treasury yield breaks above 4.55%: How geopolitical risks, inflation rebound, and Fed policy reshape markets?

On July 7, 2026, the U.S. bond market experienced a broad sell-off. The 10-year Treasury yield rose about 8 basis points in a single day, closing at 4.556%, a new high in nearly four weeks; the 30-year Treasury yield, after breaking through 5% intraday the previous day, closed firmly at 5.056%. This across-the-board jump in yields was markedly different from the previous trading day's pattern of "short-end declines, long-end rises"—the broad surge signaled a new round of dramatic restructuring in market pricing logic.

The immediate trigger came from the geopolitical front: the U.S. Treasury's Office of Foreign Assets Control revoked a general license that had previously allowed Iran's oil sales. At the same time, the U.S. military launched a new round of airstrikes against Iran. In recent days, commercial vessels have been attacked in the Strait of Hormuz, with the U.S. accusing Tehran of opening fire on three ships, including a Qatari LNG tanker and a Saudi oil tanker.

The resurgence of geopolitical risk impacted the U.S. bond market through two clear transmission channels: first, soaring energy prices fueled inflation expectations—WTI crude oil futures rose as much as 5.8% to $72.51 per barrel; second, the complexity of risk aversion—traditionally, geopolitical conflicts should benefit U.S. Treasuries (safe-haven buying), but when conflicts directly drive up energy prices and strengthen rate hike expectations, Treasuries are instead sold off. From a data perspective, we systematically analyze the driving mechanisms, sustainability assessment, and potential spillover effects on risk assets such as crypto assets of this round of U.S. Treasury sell-off.

Data Panorama: Key Readings from the U.S. Bond Market on July 7

As of the close of trading on July 7, Eastern Time, Treasury yields across maturities rose sharply: the 2-year yield closed at 4.197%, up about 7.9 basis points from the previous trading day; the 5-year yield closed at 4.287%, up about 8.6 basis points; the 10-year yield closed at 4.556%, up about 8.2 basis points; the 30-year yield closed at 5.056%, up about 7.1 basis points. The yield curve shifted upward in parallel, with the spread between the 2-year and 10-year at about 36 basis points, and the spread between the 5-year and 30-year at about 77 basis points.

The U.S. Dollar Index (DXY) returned above 101 supported by safe-haven demand, closing up 0.22% at 101.09. USD/JPY was roughly flat around 162, and EUR/USD stood at 1.1412. The New York Fed's June Consumer Expectations Survey showed that consumers' one-year-ahead inflation expectations rose to 3.67%, up from 3.46% the previous month.

Among risk assets, the three major U.S. stock indices all closed lower: the Dow fell 0.25% to 52,925.15 points; the S&P 500 fell 0.45% to 7,503.85 points; the Nasdaq fell 1.16% to 25,818.69 points. The Philadelphia Semiconductor Index plunged 4.65%, Intel fell 9.66%, and Western Digital fell nearly 8%. Commodities showed divergent trends: spot gold rose and then fell, eventually closing down 1.43% at $4,105.7 per ounce; WTI crude oil eventually closed up 5.01% at $72.38 per barrel, while Brent crude closed up 5.4% at $75.81 per barrel.

In the crypto space, Bitcoin briefly broke through the $64,000 mark before retreating slightly, currently trading at $63,634. Total liquidations across the network in the past 24 hours reached $418 million, with over 106k traders forcibly liquidated. Ethereum is trading around 1,771.

Driving Logic One: How Geopolitical Shocks Transmit to U.S. Treasuries

The starting point of this round of U.S. Treasury sell-off was the attack on merchant vessels in the Strait of Hormuz. Three ships were attacked in the Strait of Hormuz, heightening shipping industry concerns about the waterway's safety and directly testing the interim agreement between the U.S. and Iran aimed at stopping such attacks. The U.S. subsequently revoked the Iranian oil sales exemption and launched airstrikes, escalating geopolitical risk from a "potential threat" to an "actual conflict."

This shock transmits to the U.S. bond market through the following three mechanisms:

First: Energy prices → inflation expectations. The Strait of Hormuz is one of the world's most critical oil transit chokepoints. Any sign of disruption directly impacts oil prices. WTI crude rose over 5% in a single day to above $72, and Brent approached $76. Rising energy costs typically pass through to consumer goods prices within weeks, and inflation is the core variable for the Fed's current decision-making. Just a week earlier, falling oil prices had provided support for short-term U.S. Treasuries; now, with the geopolitical risk premium re-injected, the inflation narrative is back in the driver's seat.

Second: Inflation expectations → rate hike expectations → short-term rates. The New York Fed's consumer inflation expectations rose from 3.46% to 3.67%, directly driving a repricing of Fed rate hikes. According to the CME FedWatch Tool, the market's probability of a Fed rate hike in September has risen to over 67%, well above the previous day's level of about 57%. Traders have fully priced in a 100% probability of one Fed rate hike in 2026. The 2-year Treasury yield jumped nearly 8 basis points to 4.197% in a single day, a direct reflection of this expectation.

Third: Geopolitical conflict → safe-haven demand → dollar strength. The U.S. Dollar Index rose above 101, supported on one hand by safe-haven capital inflows and on the other by rate hike expectations. A stronger dollar itself puts additional pressure on emerging market assets and dollar-denominated commodities, creating cross-asset chain reactions.

Notably, there is a self-reinforcing cycle among these three mechanisms: rising oil prices push inflation expectations higher → rate hike expectations heat up → dollar strengthens → dollar-denominated energy prices face further upward pressure → inflation pressure persists. The strength of this cycle will directly determine the sustainability of this round of U.S. Treasury sell-off.

Driving Logic Two: Supply Pressure and Fed Policy Divergence

Beyond the geopolitical shock, the U.S. bond market also faces structural pressure from the supply side.

The U.S. Treasury launched a large-scale bond issuance plan this week: $58 billion in 3-year notes were sold on Tuesday; $39 billion in 10-year notes and $22 billion in 30-year bonds will be reopened on Wednesday and Thursday, respectively. Total auction size this week is $119 billion, with the long-end being the market's core concern. The 3-year note auction had a high yield of 4.179% and a bid-to-cover ratio of 2.60, down from 2.64 previously. Primary dealers took only 7.7% of the allocation, the lowest since record-keeping began in 2004—a signal worth noting: when primary dealers' allocation share hits an all-time low, it indicates weak willingness to absorb at current yield levels.

The 30-year yield has already breached the 5% level in the secondary market, meaning this week's long-end auctions on Wednesday and Thursday will face greater demand tests. Under the dual pressure of supply expansion and weak demand, the upside risk for long-end yields cannot be ignored.

On the monetary policy front, divisions within the Fed are becoming more public. Fed Governor Christopher Waller recently sent a clear signal that high inflation has replaced weak employment as the primary risk to the U.S. economy. He noted that a year ago, due to weak labor market conditions, he had advocated for rate cuts and tolerated a longer time for inflation to return to target, but the situation has now fundamentally reversed—"the labor market has stabilized, while inflation is accelerating." Meanwhile, New York Fed President John Williams struck a more dovish tone, saying his concerns about domestic price pressures have eased due to recent declines in energy prices.

Such internal division means the market struggles to form a consistent policy expectation, and any new data point could trigger outsized market volatility. Market focus has shifted to the June Consumer Price Index, scheduled for release on July 14—the last key inflation data point before the Fed's July 28-29 meeting, which will have a decisive impact on policy direction.

Sustainability of the Sell-off: Three Key Variables

Assessing "how much further" this round of U.S. Treasury sell-off can go requires close attention to the following three variables:

Variable One: The trajectory of the Middle East situation. Current pricing in the U.S. bond market has already incorporated the expectation of "conflict escalation," but has not fully priced in a "protracted conflict" scenario. Iran's military has vowed "devastating retaliation." If the conflict escalates from airstrikes to broader military confrontation, oil prices could climb further to $80 or even higher, putting greater upward pressure on inflation expectations. Conversely, if the situation is brought under control in the short term, the U.S. bond market could see a corrective rebound.

Variable Two: The actual reading of the June CPI data. Current market pricing for rate hikes is based on expectations that inflation will accelerate due to rising oil prices. If the June CPI data shows that core inflation has not deteriorated significantly due to energy prices, rate hike expectations could quickly recede, providing support for short-term U.S. Treasuries. However, if the CPI comes in higher than expected, the market will have to reassess the magnitude and pace of Fed rate hikes for the rest of the year—currently, the market is pricing in about 26 basis points of total rate hikes by year-end, and this number has room for upward revision.

Variable Three: Demand elasticity at long-end auctions. This week's 10-year and 30-year auctions on Wednesday and Thursday will be important demand tests. If auction results show strong demand elasticity (e.g., higher bid-to-cover ratios, improved primary dealer allocation), the upside for long-end yields will be limited; conversely, if demand is weak, the 30-year yield could move further away from the 5% level and toward the 5.1% to 5.2% range.

Major institutions are already showing divergent views on the current situation. Morgan Stanley's rates strategy team advises investors to bet that Fed rate hike expectations will fade, capturing yield curve steepening opportunities by positioning for a widening spread between 7-year and 30-year U.S. Treasuries. TD Securities expects the 10-year yield to trade in a range of 4.25% to 4.66% in the near term. Goldman Sachs takes a more macro perspective, arguing that 2026 economic growth will be the main driver of government bond yields.

Conclusion

A 10-year U.S. Treasury yield of 4.55% is the result of four factors converging: geopolitical risk premium, rekindled inflation expectations, supply pressure, and policy uncertainty. This level itself does not represent an extreme valuation deviation—the 10-year yield has fluctuated within a wider range over the past 18 months—but the key is the shift in driving logic: from a one-sided narrative of "inflation slowly receding" to a domino-like transmission of "geopolitical conflict → energy shock → inflation resurgence → rate hike repricing."

For the crypto asset market, the impact of this logic chain is equally profound. The continued rise in U.S. Treasury yields means an increase in the risk-free rate, exerting systemic pressure on the valuation center of risk assets. Bitcoin's rapid retreat after breaking $64,000, along with over $400 million in liquidations across the network, is to some extent a microcosm of this macro pressure. However, another aspect of geopolitical conflict is the rising trust cost of the traditional financial system—precisely part of the core narrative for crypto assets. In the short term, rate hike expectations and liquidity tightening act as headwinds; in the medium to long term, persistent geopolitical uncertainty may provide new narrative support for crypto assets as a "non-sovereign store of value."

The endpoint of the U.S. Treasury sell-off depends on the fuse length of the Middle East powder keg, the actual trajectory of inflation data, and the market's recalibration of the Fed's policy path. Unexpected changes in any of these three variables are enough to trigger a new round of asset pricing restructuring. For market participants, identifying certainty within uncertainty—rather than seeking uncertainty within certainty—may be the most pragmatic stance at present.