Analysis
The 10-year Treasury yield climbed to 5.041% Tuesday morning, its highest since 2007, while Dow futures fell 0.6%, S&P 500 futures 0.5% and Nasdaq-100 futures 0.7% as investors braced for Wednesday's Fed decision, Yahoo Finance reported.
What changed since Pulse covered Monday's initial move to 5.00%: the yield pushed higher again overnight, and the market-implied odds of a quarter-point Fed hike Wednesday rose to roughly 92%, up from 88% a day earlier. Brent crude held near $107.55, up about 1.8%, still elevated on the Saudi pipeline shutdown that first moved oil Monday. If the Fed hikes as priced, it would be the first increase since July 2023 -- and would be arriving largely because the market now expects it, a dynamic Goldman Sachs economist David Mericle flagged over the weekend as the FOMC trying to avoid the reaction that not hiking would trigger.
“Brent crude held near $107.55, up about 1.8%, still elevated on the Saudi pipeline shutdown that first moved oil Monday.”
A 5%-plus risk-free rate resets every discount model in private markets a little further with each basis point, and it compounds with a genuine second driver in the same print: oil above $107 raises input costs for the data-center buildout at the exact moment financing for that buildout is getting more expensive. The two variables aren't independent -- expensive energy feeds the inflation print that's pushing the Fed toward hiking in the first place.
The caveat is timing: futures often overreact the morning before a Fed decision and partially unwind once the actual statement lands, whichever way it goes. A 92% probability is priced by traders who can be wrong, and a surprise hold would likely produce a sharper reversal than an as-expected hike would produce a continuation. Nothing here is decided until Wednesday's statement.
For anyone timing an exit, Wednesday's decision -- not today's futures move -- is the print that actually resets the discount rate GPs are underwriting against for the rest of the year.
