US Treasury yields rose on the 20th, with the 10-year note climbing 5.60 basis points to 4.5980% as of 3pm Eastern Time, as Yemen's Houthi rebels declared a maritime blockade against Saudi Arabia and UK Prime Minister Andy Burnham stated his government would use "all flexibility" within existing fiscal rules. The Houthi announcement intensified concerns that the Bab-el-Mandeb Strait connecting the Red Sea and Gulf of Aden could be disrupted, threatening Saudi oil exports through the Red Sea route after Hormuz Strait transit difficulties emerged following the Iran conflict. UK gilt yields surged 7-8 basis points across maturities after Burnham's fiscal flexibility remarks triggered spending expansion concerns, with the 10-year gilt yield jumping to 5.0448%, the first close above 5.0% since late May.
US Treasury Yields Rise Across Curve on Geopolitical and Fiscal Concerns
US Treasury prices fell on the 20th, with longer-dated securities showing relative weakness in a bear steepening pattern. The 2-year note yield, sensitive to monetary policy expectations, rose 4.30 basis points to 4.2150%. The 30-year bond yield increased 5.30 basis points to 5.1170%. The spread between 10-year and 2-year yields widened from 37.00 basis points to 38.30 basis points. Treasury yields initially declined ahead of New York trading hours before reversing direction after the Houthi blockade declaration.
Houthi Rebels Declare Saudi Maritime Blockade as Ceasefire Proposal Emerges
Yemen's pro-Iran Houthi rebels, based near the Bab-el-Mandeb Strait linking the Red Sea and Gulf of Aden, declared a maritime blockade against Saudi Arabia. Saudi Arabia has been using its east-west pipeline to transport crude oil to Yanbu port for export via the Red Sea after Hormuz Strait transit became difficult following the Iran war outbreak. Mediating countries proposed a "10-day Iran-US ceasefire," but the blockade announcement diminished the brief optimism that emerged from the ceasefire proposal. Tom di Galoma, managing director at Mishuler Financial Group, stated: "Oil prices will definitely rise. This is not something that will be resolved overnight."
UK PM Burnham Signals Fiscal Flexibility, Gilt Yields Surge Past 5%
Andy Burnham, who took office as UK Prime Minister on the same day, told reporters he would adhere to existing fiscal rules while using "all the flexibility that is clearly permitted within them." The "flexibility" reference sparked concerns about increased fiscal spending. Gilt yields jumped 7-8 basis points across most maturities, with the 10-year gilt yield rising 7.76 basis points to 5.0448%, marking the first close above 5.0% since late May. Burnham appointed John Healey, former defense minister who resigned from Keir Starmer's cabinet criticizing insufficient defense investment plans, as Chancellor of the Exchequer. The appointment was unexpected, as Healey was not widely anticipated for the Treasury role.
Market Analysts Assess Oil Supply Risks and UK Spending Outlook
Evelyn Gomez-Richty, multi-asset strategist at Mizuho Securities, stated: "There was some reaction in the market, which seems to be due to the headline that he would use all possible flexibility within the fiscal rules. The market is sensitive to specific issues related to fiscal rules." Nick Rees, head of macro research at Monex Europe, commented on Healey's appointment: "It could suggest increased defense spending, which could mean overall spending increases, but we'll have to wait and see. I don't think anyone in the market has been closely watching Healey." According to CME FedWatch, the federal funds rate futures market priced in a 16.6% probability of a Fed rate hike next week as of 3:49pm New York time, slightly higher than the previous session. The probability of a September hike rose from the high 50% range to over 60%.
FAQ
What caused US Treasury yields to rise on the 20th?
US Treasury yields increased due to Yemen's Houthi rebels declaring a maritime blockade against Saudi Arabia and UK Prime Minister Andy Burnham stating his government would use "all flexibility" within fiscal rules. The 10-year Treasury yield rose 5.60 basis points to 4.5980% as of 3pm Eastern Time.
How did UK gilt yields react to Prime Minister Burnham's statements?
UK gilt yields surged 7-8 basis points across maturities after Burnham's fiscal flexibility remarks. The 10-year gilt yield jumped 7.76 basis points to 5.0448%, marking the first close above 5.0% since late May, as markets interpreted the "flexibility" language as potentially signaling increased fiscal spending.
What is the significance of the Houthi maritime blockade declaration?
The Houthi rebels, based near the Bab-el-Mandeb Strait connecting the Red Sea and Gulf of Aden, threatened Saudi oil exports through the Red Sea route. Saudi Arabia has been using this route after Hormuz Strait transit became difficult following the Iran conflict. Analysts stated oil prices will rise as the situation will not be resolved quickly.
