Treasury Yields Move Lower

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.

The yield on the 10-year US Treasury note dropped to 4.3% on Tuesday, extending the retreat from the eight-month high of 4.44% two sessions prior as growth concerns gained ground on investors' forefront. The rebound for Treasuries reflected the high magnitude of uncertainty regarding the impact that the war in the Persian gulf will have on the US economy. Attacks by Iran on tankers in the Persian Gulf extended bets on the duration of the supply chock from the Persian Gulf, but increased concerns that the war can derail global growth limited the inflationary impact on bond yields. Despite the surge in energy prices, Federal Reserve Chairman Powell noted that inflation expectations remained grounded, limiting the urgency for a response in monetary policy as the central bank already has limited tools to combat supply shocks. The yield on the 10-year note had gained up to 40bps in March before its pullback, tracking the surge in energy prices that risk inflation across major economies.