A heavy sell-off in US Treasuries continued for a fourth day on Thursday, as investors expressed concern that rising energy prices from the war in the Middle East could push up inflation and derail the Federal Reserve’s rate projections.

The benchmark 10-year US Treasury yield rose as much as 5 basis points (bps) to a three-week high of 4.1310% in Asia. It was last up 3 bps for the day and on track for its biggest weekly gain since April 2025 at 15 bps.

The two-year yield rose more than 18 bps this week, up nearly 2 bps to 3.566%. Bond prices move inversely to yields.

Investors have shrugged off expectations of further easing from the Fed this year in the wake of the US-Israeli war with Iran, which entered its sixth day as Iran launched a barrage of missiles at Israel, sending millions of residents into bomb shelters.

That has kept oil prices high, and with shipping key through the Strait of Hormuz, investors’ attention has quickly turned to the risk of a resurgence of inflation.

Benchmark US oil prices rose to $78.09 a barrel on Thursday, the highest since June, and were last up 2.3% at $76.33 a barrel.

“As of right now, the (US) consumer price index will go back to the high (2%) if crude oil costs don’t fall in short order,” said Jose Torres, senior economist at Interactive Brokers.

“A reversal in (inflation) progress would likely send Treasuries and stocks lower, as optimism for a rate-cut amid subdued spending pressures on fixed incomes and cyclical benchmarks as early as 2026.”

Traders are now pricing in about a 30% chance of a Fed cut in June, up from 40% a week ago, according to the CME FedWatch tool.

Fed funds futures point to an easing of just over 40 bps by the end of the year.

The changing Fed expectations also came on the back of upbeat US economic data on Wednesday, which showed service sector activity rose to a 3-1/2-year high in February amid strong demand.