Fed rate hike in September? Warsh's hawkish tone and oil spike push Treasury yields up.

Treasury yields climbed on Monday as traders reacted to two key drivers: a hawkish signal from a top Federal Reserve candidate and a sharp rise in oil prices. Both factors point to a possible interest rate hike in September. Kevin Warsh, a former Fed governor and a leading contender for the central bank’s chair, said in a recent interview that the Fed should not delay tightening policy. His comments were read as a clear warning that inflation may be more persistent than expected. At the same time, crude oil prices jumped after supply disruptions were reported in the Gulf of Mexico. Higher energy costs typically push up consumer prices, which strengthens the case for the Fed to act sooner rather than later. As a result, the yield on the 10-year Treasury note rose to its highest level in several weeks. Yields move inversely to bond prices, so a rise in yields signals that investors are selling bonds and expecting higher borrowing costs ahead. Market watchers now see a September rate hike as more likely. According to the CME Group’s FedWatch tool, the probability of a quarter-point increase rose to 43 percent, up from 36 percent a week ago. The Fed has kept its benchmark rate unchanged since June. But with Warsh pressing for action and energy prices climbing, the central bank may face growing pressure to move sooner than many had planned for.