Crude oil extended its rally and Asian bonds tracked Treasuries lower as higher energy prices fueled inflation concerns and strengthened bets on a Federal Reserve interest-rate hike. Brent climbed 1.2% to just below $107 a barrel, extending the gains this month to over 18%. Oil pushed higher as traders weighed risks to Middle East supplies, with a critical Saudi Arabian pipeline still offline after attacks.

Rising oil prices weighed on Asian bonds with government debt in Australia, Japan and New Zealand edging lower. That tracked a drop in Treasuries in the New York session, when the benchmark 10-year Treasury yield briefly breached the 5% mark for the first time since 2023. The yield on the 10-year hovered around that level in Asian trading Tuesday.

Japanese bonds declined before a 20-year debt auction. Elsewhere, Asian stocks edged lower after chip stocks declined globally on Monday following a warning from leading artificial intelligence companies. The surge in oil prices and a hotter-than-estimated US inflation reading last week have heightened concerns ahead of Wednesday’s Fed decision, with traders pricing in a more-than-90% chance of a rate increase.

Fed officials have grown increasingly concerned about stubbornly high inflation, with three policymakers dissenting in favor of a hike at their July meeting.