US Treasury Yields at 3-Month High

The yield on the US 10-year Treasury note edged up 7bps to 5% on Friday, recovering from an 8bps decline in the previous session, as traders digested a more hawkish Fed and reassessed the outlook for monetary policy. The central bank raised the target range for the federal funds rate by 25bps to 3.75%-4%, as expected. The Fed also signalled at least one more rate hike this year, while Chair Warsh reaffirmed the central bank’s commitment to taming inflation, helping to restore market confidence in its policy stance and credibility. The benchmark yield topped 5.04% ahead of the FOMC decision, its highest level since 2007, amid concerns over the Fed’s ability to bring inflation under control and persistently elevated oil prices. Meanwhile, oil prices were volatile on Friday after falling in the previous two sessions, amid concerns about supply from Saudi Arabia and as geopolitical tensions in the Middle East remained elevated.

The yield on the US 10-year Treasury note held around 4.94% on Friday after losing almost 10 basis points in the previous session, retreating from 19-year highs as softer oil prices eased inflation concerns. Oil prices fell for a third consecutive session as Saudi Arabia took steps to resume flows through its East-West pipeline, while President Donald Trump is expected to meet with Gulf leaders next week. Markets also continued to assess the Federal Reserve’s policy direction after the central bank raised interest rates by 25 basis points this week, marking its first hike in three years. The Fed indicated that additional tightening could be pursued later this year to curb persistent price pressures, with Chair Kevin Warsh emphasizing that inflation remains elevated. The Bank of Japan is likewise expected to increase rates, while the Bank of England kept borrowing costs unchanged on Thursday but warned that a prolonged Middle East conflict could eventually prompt further tightening.

The yield on the US 10-year Treasury note fell to 4.95% on Thursday, below the 2007 high of 5.04% reached earlier in the week. The decline came after the Fed raised interest rates and Chair Warsh reaffirmed the central bank’s commitment to tackling inflation, reassuring investors about its policy credibility and determination to contain price pressures. The central bank raised the target range for the federal funds rate by 25bps, marking its first rate hike since July 2023, and signalled at least one further increase in borrowing costs this year. While the move had been fully priced in ahead of the decision, investors had been concerned that a surprise decision to hold rates could trigger a surge in market volatility. Meanwhile, the yield on the 2-year Treasury note, which is more sensitive to near-term Federal Reserve policy, edged down to 4.73%, while the yield on 30-year Treasury bonds, which are more sensitive to longer-term inflation and geopolitical risks, fell to 5.34%.