The 10-year U.S. Treasury yield briefly topped 5% Monday for the first time since 2023 as the price of oil surged and the nationwide average cost of diesel fuel hit an all-time high.
Fears about those higher fuel prices feeding overall inflation are helping drive up yields. The Federal Reserve is widely expected to hike interest rates Wednesday for the first time since 2023. As of Monday, market odds for a hike were greater than 90%.
Longer-term bond yields, such as the 30-year Treasury bonds, rose to more than 5.37% on Monday, continuing to push to their highest levels since 2007. Consumer interest rates, such as those for mortgages, typically follow moves in bond yields.
Fuel prices shifted after Saudi Arabia shut a critical pipeline and talks about the future of the Strait of Hormuz were postponed.
The international oil benchmark, Brent crude, surged to more than $109 a barrel, while U.S. crude oil nearly hit $105.
By the end of the day, the increase had moderated. Brent closed the day up 1%, at $105.68 per barrel, and U.S. crude ended the trading session up 1.3%, at $101.39.
The East-West Pipeline, a key route for energy supplies, became even more critical because of the stalemate in the Strait of Hormuz, where vessel traffic has barely reached double digits in recent days.
U.S. Energy Secretary Chris Wright said Monday that he did not have an exact time frame for when the pipeline may restart but that he was in contact with his Saudi counterpart and believed it would be “very soon.”
“I might have more of a time frame tomorrow,” he told Bloomberg Television. “They’ve been very carefully assessing what the damage was, what needs to be done, and I think more clarity on that will come out very soon.”
On Friday, the Saudi Energy Ministry said the pipeline was shut down “as a precautionary measure.” It did not say when the pipeline would be operational again. The attacks came as the Iran-backed Houthi rebels in Yemen made sweeping gains that tightened their grip on Bab el Mandeb, another critical waterway.
But the pipeline could be “out of service for weeks as the damage is repaired,” The Associated Press reported later Monday, citing two regional officials.
Adding to investors’ worries, a meeting between Iran and Persian Gulf countries about Hormuz was postponed Sunday afternoon. That meeting, set for Monday, was delayed “in the interests of consensus,” Oman’s foreign minister wrote on X.
Tehran said the meeting was postponed at the request of Riyadh.
On Monday, the Saudi state-run news agency said Crown Prince Mohammed bin Salman met with Adm. Brad Cooper, the commander of U.S. Central Command, in Jeddah.
Traffic through Hormuz remains at just a small fraction of pre-Iran war levels. On Sunday, just 14 vessels passed through the strait, and the numbers were only 12 Saturday, 11 Friday and nine Thursday, according to data from MarineTraffic.
With crude oil prices rising as a result of those disruptions, gasoline prices are, too. On Monday, the national average price of unleaded regular gas rose to $4.31 per gallon, according to AAA.
The national average price of regular gas has risen more than 45% since the U.S. and Israel launched the Iran war. The price of U.S. crude oil has soared more than 50% since the war started Feb. 28.
Since the start of the year, oil prices have risen more than 80%.
On top of that, the price of diesel fuel continues to set all-time highs. The national average price of diesel rose to $6.23 per gallon Monday, AAA also reported.
Diesel, which is used in everything from trucking to boat transportation to trains, has become a particular focus for economists who say it could cause almost everything to cost more.
“The cost of diesel gets into just about everything,” KPMG chief economist Diane Swonk said in a recent interview with NBC News.
“From running a farm ... [to the] cost of food, but also everything across the economy that’s shipped,” she said. When diesel prices rise, everything “gets that extra fee tacked onto it.”
Swonk predicted that the high cost of diesel will be an “inflationary problem” for months to come.
On Sunday, President Donald Trump sought to act on the issue by urging Ukraine to halt attacks on Russian energy targets.
Trump told reporters at the Irish Open in Doonbeg, Ireland, that he recently spoke with Ukrainian President Volodymyr Zelenskyy and asked him to stop targeting Russia’s oil refining infrastructure, particularly because of what is happening with the soaring price of diesel fuel.
“Mr. Zelenskyy has to do one thing,” Trump said. “He has to stop knocking out diesel fuel in Russia.”
“Let him go after targets, but not diesel fuel, because he’s causing a shortage of diesel fuel,” Trump continued. “Don’t hit diesel fuel, because that’s hurting the world.”
ING commodities analysts said Monday: “The growing scale and intensity of Ukrainian attacks on Russian refineries this year have pushed Moscow to ban diesel exports. This has only tightened global markets, following Persian Gulf disruptions.”
Russia’s ban on diesel exports is set to expire at the end of September, but “clearly, there is the potential for further extensions,” ING’s team said.
After diesel prices fell as low as $4.77 per gallon in late June, new escalations between Ukraine and Russia have driven them 30% higher.
Since the start of the year, they have soared 75%.
