Treasury Yields Rise

The yield on the US 10-year Treasury note rose to 4.37% on Thursday as hopes for a quick end to the Middle East war faded, fueling concerns of a prolonged energy crisis that could drive inflation higher. President Donald Trump told the nation in a prime-time speech that the conflict may be nearing an end but warned that the US would continue military action against Iran over the next two to three weeks. Iran on Wednesday also denied Trump’s claim that it had requested a ceasefire. Meanwhile, latest data showed that March ADP private payrolls exceeded forecasts, and February retail sales posted stronger-than-expected gains, underscoring the resilience of the US economy. Markets are now pricing in zero rate cuts from the Federal Reserve for the rest of the year, even though Fed’s own projections, updated last month, still show one reduction.

The yield on the US 10-year Treasury note was little changed at 4.31% at the start of April, after rising nearly 37bps in March, as traders weighed tentative signs that the war with Iran could be nearing an end. President Trump said he expected the conflict to conclude within 2 to 3 weeks, later adding that Iran had requested a ceasefire and that the US would consider it once the Strait of Hormuz is open, secure, and fully operational. These developments have helped pull oil prices back from recent highs. Still, uncertainty remains, with the Strait of Hormuz largely closed and attacks continuing across the Gulf. On the data front, fresh ADP figures showed the private sector added 62K jobs in March, well above forecasts of 40K, while retail sales rose a stronger-than-expected 0.6% in February, signs that the US economy remains resilient. Traders largely expect the Fed to keep the fed funds rate unchanged this year, although the probability of a rate cut has increased.

The yield on the 10-year US Treasury note fell to 4.28% on Wednesday, marking a third consecutive session of decline as investors grew increasingly concerned about the Middle East war’s impact on economic growth. Now in its fifth week, the conflict has rattled global markets and raised fears of a simultaneous spike in inflation and slowdown in growth. However, Federal Reserve Chair Jerome Powell earlier this week noted that longer-term inflation expectations remain well-contained, easing concerns that higher energy prices will immediately push inflation higher. This reduces the urgency for any monetary policy response, particularly as the Fed has limited tools to counter supply-driven shocks. The yield on the 10-year note climbed around 39 bps in March, reflecting the surge in oil prices amid renewed inflation concerns.