Treasury Yields Waver

The yield on the 10-year US Treasury note held around 4.46% on Wednesday after climbing about 10 basis points in the previous session, as signs of a resilient economy reinforced expectations of a hawkish Federal Reserve. Data released on Tuesday showed US job openings rose to a two-year high in May, indicating labor demand remained strong despite signs of softer hiring. Markets are now pricing in at least one Fed rate hike this year, with the first potentially coming as early as September. Investors are now awaiting the latest US monthly jobs report for further clues on the strength of the labor market and the outlook for Fed policy. Meanwhile, markets continued to monitor the ongoing US-Iran peace talks in Qatar amid hopes for a lasting ceasefire agreement, although the two sides were not expected to hold direct talks.

The yield on the 10-year US Treasury note rose to 4.40% on Tuesday, rebounding from the seven-week low of 4.37% from the last session as evidence of a strong economy supported the outlook of a hawkish Federal Reserve. The JOLTS pointed to the largest number of job openings in two years, well above market expectations, and aligning with the surge in payrolls from the period. The data consolidated the robust labor market momentum ahead of fresh jobs data Thursday. Despite Fed Chairman Warsh's opposition to signal any guidance for the central bank, the current backdrop of a low-firing backdrop with elevated core inflation drove multiple FOMC members to project rate hikes this year. In the meantime, Warsh's campaign to shrink the Fed's holdings of Treasury notes and bonds also lifted yields. This offset the lower outlook for inflation as progress in restoring energy supply from the Persian Gulf drove energy prices to retreat.

The yield on the 10-year US Treasury note was below 4.38% on Tuesday, the least since early May as lower energy prices dampened inflationary risks and the likelihood of a hawkish response by the Federal Reserve. Wholesale crude oil and fuel prices maintained the sharp decline from the end of June amid evidence that tanker flows through the Strait of Hormuz are being restored. The improving supply for key energy commodities countered the price pressures that drove a portion of the FOMC to project one or more rate hikes this year following their meeting this month. Core inflation gauges had already reflected rising underlying inflation above the 3% level, while jobs data continued to suggest robust labor market conditions. Still, long-term yields did not drop at the extent that energy prices did. Fed Chairman Warsh repeatedly campaigned for the Fed to reduce its holdings of Treasury notes and bonds, and started a task force to investigate whether a move is warranted.