US Treasury yields have soared to their highest since 2007, suggesting a restrictive phase in American monetary policy, reflecting the intensification of price pressures due to the surge in oil prices and the conflict in the Middle East. A phase that would coincide with the new Warsh era at the helm of the Fed.
The rise of the entire interest rate curve
The yield on the thirty-year bond soared yesterday to 5.2%, the highest level since 2007, in the midst of an intense sell-off in the government sector. and today it stops just below this level at 5.17%. The yield on the ten-year bond – the main benchmark for the cost of US debt – rose to a high of 4.67%, while the two-year bond, more sensitive to the Fed’s short-term moves, ended yesterday at 4.12%.
The rise in yields is not confined to the United States: 10-year German Bunds are trading at 3.127%, Japanese JGBs have risen to 2.69%, while 10-year British Gilts have reached 4.56%.
The causes of the rise
At the root of the movement is a deteriorated inflationary picture. Core inflation in April 2026 recorded growth at 2.8% year-on-year, above the consensus of 2.7%, driven by high housing costs, resilient inflation in services and a reacceleration of goods prices. The data showed headline inflation at 3.8% compared to April 2025, with the war in Iran — which has lasted for ten weeks — pushing energy prices and pushing the index away from the Fed’s 2% target.
Added to this is the tax component. Tensions in the bond market also reflect persistent budget challenges: despite a surplus of $215 billion in April, the figure was 17% lower than in the same month in 2025, and the $97 billion spent on interest on the debt was the second largest spending item after Social Security. Concerns about federal deficits and signs of a still resilient economy are causing investors to demand a higher premium for holding long-dated debt.
The beginning of the Warsh era
Warsh was confirmed on May 13 as head of the Federal Reserve, representing the seventeenth president of the US central bank, with a Senate vote of 54 to 45, the most divided in the history of the institution. His term officially began on May 15, coinciding with the expiration of that of Jerome Powell.
Warsh, 56, has been a critic of monetary policy in the past and called for “regime change” at the central bank in an interview with CNBC last year. His appointment, strongly supported by the White House, in particular by President Trump, who repeatedly fired shots at his predecessor for his inaction, opens a delicate phase.
Warsh finds himself leading the Fed under pressure from the administration, which is calling for rate cuts, and from colleagues who are increasingly determined to keep the cost of money stable. Since the beginning of March, the 10-year yield has risen by around 45 basis points and investors are now betting that Treasury yields will remain high for longer, skeptical of the new president’s ability to tame inflation fueled by the Middle Eastern conflict.
The Fed’s next moves
The Fed has kept the reference rate in the 3.5%-3.75% range since December. The first FOMC meeting chaired by Warsh is scheduled for June 16-17. The picture of expectations has changed radically: the CME FedWatch Tool has raised the probability of a quarter-point increase within the year to 50%, while BNP Paribas believes that, if the FOMC were to decide to raise rates, it would probably do so starting from the December 2026 meeting.
Joseph Brusuelas, chief economist at RSM, noted that the recent rise in market-implied breakeven inflation rates strongly suggests that Warsh and the FOMC will need to prepare for the possibility of further rising inflation and a possible policy change.
Ryan Swift, chief US bond strategist at BCA Research, warns that any initial dovish arguments from Warsh could cause Warsh to lose control of the long end of the curve.
