Long-run Treasury yields cooled slightly but are still hovering near their multiyear highs as investors raised their bets the Federal Reserve will hike interest rates at its meeting next week.

The Labor Department reported that the consumer price index held steady at 3.4% in August, matching economist expectations. However, a firmer-than-expected measure that excludes volatile food and energy prices came in higher than expected.

The U.S. 2-year yield, sensitive to expectations for short-term interest rates, hovered around 4.61% in midday trading on Friday. Earlier in the session, the 2-year yield rose to as high as 4.644%, the highest level since July 2024.

The 10-year Treasury yield edged down after nearing 5% ahead of the CPI print, as investors bet the Fed will buckle down in its inflation fight and reduce the risk that the central bank will need to raise rates even more in the future. The 10-year yield now sits at about 4.95%.

Odds for a rate hike climbed to nearly 90% ahead of Fed's September interest rate meeting, according to CME's FedWatch tool. A month ago, those odds were nearly split evenly. Consumer sentiment data for September also fell near all-time lows as households' economic mood was soured by high gasoline prices.

"Warsh has said that he wants the FOMC to engage in a "good family fight", the unambiguous message from the price data means there is likely to be broad agreement about a vote to hike with few, if any, members dissenting," wrote Stephen Brown, chief North America economist at Capital Economics.

Capital Economics now estimates the PCE deflator rose by 0.27% month-over-month in August.

Elsewhere in global markets, the German 10-year bund yield now sits around 3.503% down from a 15-year high of 3.515%. The U.K. 10-year Gilt yield is 5.349% after hitting a 19-year high of 5.381% on Thursday.

Although rising yield levels look increasingly attractive for many investors, caution is warranted until yields settle, Christoph Rieger, head of rates and credit research at Commerzbank, said in a note.

"We maintain a cautious duration stance as the [bond] market is struggling to establish a new range, while oil prices stay under pressure and central banks stick with their laissez-faire attitude toward rising bond yields," Rieger said.

Oil prices could stay elevated, possibly preventing bond yields from falling meaningfully in the near term. Brent crude sits around $104.75 a barrel.

Iran-backed Houthi militants seized the strategic port city of Mokha on Yemen's west coast Thursday, further expanding their control near the Bab al-Mandeb chokepoint for energy exports through the Red Sea. This threatens to disrupt Saudi oil exports while shipping via the Strait of Hormuz remains complicated.