Kobeissi: 10-Year U.S. Treasury Yield Approaches 5%
Market communication from The Kobeissi Letter states that in about eight hours, the yield on the U.S. 10-year Treasury is approaching 5.00%, while U.S. oil prices have surpassed $104 per barrel; if Friday's CPI is hot, the situation will be difficult, and it is stated that the U.S. economy cannot bear higher interest rates, and one side must give way.
Trading data shows that the 10-year yield reached a high of about 4.975% during the day, closing around 4.969%, marking the highest level since October 2023, with one of the largest daily increases in months, rising for several consecutive days. West Texas Intermediate crude previously settled above $102, and Brent above $107, with the communication using an intraday figure of over $104. Wholesale prices accelerated in August, and along with rising energy prices, long-duration bonds were sold off.
The August CPI will be released at 8:30 AM on Friday, marking the last complete consumer price report before the Fed's meeting in mid-September. July's year-on-year increase was 3.4%, with a month-on-month increase of 0.1%. The market's pricing for a 25 basis point increase in September has risen to about 60% to 70%. The ECB has just raised the deposit rate to 2.50%. The national average diesel price has just surpassed $6 per gallon, with freight and housing rates under pressure.
5% is a psychological threshold, not a policy rate. The rise in the 10-year yield directly increases mortgage and corporate bond issuance costs, aligning with the judgment that "the economy cannot afford higher interest rates." The communication depicts oil prices, bond yields, and CPI as a triangle: if energy does not return, bond yields will struggle to return; if CPI is hot, the curve will need to be repriced for another rate hike.
Mechanically, this is an inflation premium trade. The buyers are bond shorts hedging against rate hikes and oil prices; the sellers are funds reducing duration and overseas reserves. Funds are flowing from long bonds to cash and energy. Beneficiaries are floating rate debt and energy stocks; those under pressure are housing, growth stocks, and finances that have budgeted financing at 4.8%. The event is driven by the yield approaching an integer and oil prices moving in sync, with CPI yet to be printed.
On a supplementary note, 4.969% has not yet closed firmly above 5.00%. The communication's "the economy cannot afford higher interest rates" is a judgment statement, not a new growth rate data point.
Source: Public Information
ABAB AI Insight
The yield took eight hours to hit 5% because oil prices first hit 104. The curve is giving a term premium for secondary inflation in energy, not waiting for Friday's statistics. Kobeissi summarizes three things into one: oil, rates, and CPI must have one side collapse first. Interest expenses for finance and mortgages are sensitive to 5%, so the integer threshold is both a financial and political point.
The capital path is "oil price - breakeven inflation - 10-year yield." Money is flowing out of Treasury bond funds into energy futures and overnight. The motivation is to avoid holding duration before the meeting to bet on cooling. The ECB has raised rates, while U.S. bonds have not yet surpassed 5%, arbitraging the safety premium of dollar assets.
In contrast to the risk asset pullback after the 10-year yield surpassed 5% in October 2023: the integer itself will trigger model de-risking. The industry phase is that the energy shock enters the risk-free interest rate from pump prices. Control will be divided on Friday; if the core stabilizes and the headline is driven high by energy, the curve may just be a pulse.
Structural changes belong to the transfer of pricing power. The mechanism is: when oil prices become the main variable for inflation again, the 10-year yield will no longer only reflect growth and neutral rates, but become a discount for energy risk; the 5% threshold will require both the public and private sectors to rewrite interest budgets. The side that must give way will be oil, growth, or policy, which will be determined after the printing.
ABAB News · Law of Cognition
- Oil prices hit three digits first, and bond yields will test 5%.
- The integer threshold triggers model de-risking, not economic laws.
- One side of the triangle must give way first: oil, rates, or growth.