US Treasury Yields Inch Higher after Fed

The yield on the US 10-year Treasury note fell to 4.68% on Monday, supported by lower oil prices and easing inflation concerns as hopes grew that tensions in the Middle East could ease. US President Trump said negotiations with Iran would begin on Monday afternoon and canceled a planned attack on the country. Investors are also awaiting a fresh batch of US economic data this week, including the closely watched employment report, for further clues on the strength of the labor market. Last week, the Fed left interest rates unchanged, although three policymakers dissented. Markets are now pricing in a roughly 63% probability of a 25bps rate hike in September, down from around 80% before the policy decision, as Chair Kevin Warsh provided little forward guidance on the outlook for interest rates. Separately, reports indicated that Warsh is considering reducing the number of Federal Reserve policy meetings from the current eight per year.

The yield on the US 10-year Treasury note slipped to around 4.7% on Monday, retreating from an 18-month high as investors awaited a busy week of labor market data, highlighted by Friday's closely watched monthly US jobs report. Last week, the Federal Reserve left interest rates unchanged, although three officials dissented, warning that waiting too long to act could eventually require more aggressive policy tightening. Markets are currently pricing in about a 68% chance of a 25 basis point Fed rate hike in September. Meanwhile, reports indicated that Fed Chair Kevin Warsh is considering reducing the number of policy meetings from the current eight per year. Investors have criticized Warsh's efforts to limit forward guidance on the path of interest rates, while the Fed continues to face mounting pressure to do more to rein in inflation.

The yield on the US 10-year Treasury note rose to 4.73% on Friday, returning to its highest level since January 2025, as investors weighed remarks from Fed policymakers that reinforced the case for higher interest rates to curb inflation. Minneapolis Fed President Kashkari said he would prefer smaller rate hikes now rather than waiting, while Cleveland Fed President Hammack warned that the longer inflation remains elevated, the more difficult and costly it will be to bring it back to target. Dallas Fed President Logan said inflation risks are to the upside. These are the three FOMC members who dissented at this week's meeting, voting in favor of a 25bps rate hike, although the Fed left the federal funds rate unchanged. Even so, investors' expectations for a rate hike at the next policy meeting in September eased after Governor Warsh offered little guidance on the future path of monetary policy, although markets continue to price in roughly a two-thirds probability of a 25bps increase.