US 10Y Yield Holds Advance on Inflation Risk

The yield on the US 10-year Treasury note held around 4.14% on Friday after rising for four consecutive sessions, supported by concerns over resurgent inflation as the Middle East conflict pushed oil prices higher. Markets have scaled back expectations for Federal Reserve rate cuts, with traders now pricing the next reduction for September or October from earlier projections of July. Recent US data also underscored robust economic momentum, including lower jobless claims, stronger productivity, fewer job cuts, and faster-than-expected growth in the services sector. The US-Israeli offensive against Iran has entered its seventh day with no signs of abating, while Tehran launched a new wave of missile and drone strikes across the Gulf. Iranian Foreign Minister Abbas Araghchi also denied reports of seeking a ceasefire and indicated no intention to negotiate.

The yield on the US 10-year Treasury note rose for a fourth consecutive session to 4.14% on Thursday, the highest level in about a month, as inflation concerns intensified amid the escalating conflict with Iran, with both Tehran and Washington vowing to step up attacks. The global bond selloff continued as energy prices resumed their climb after a brief reprieve the previous day, with traders worried that prolonged disruptions to oil and natural gas supplies could fuel an inflationary spiral. Meanwhile, recent economic data reinforced the strength of the US economy. Initial jobless claims came in below forecasts, productivity rose more than expected last quarter, job cuts declined sharply, and the ISM Services PMI showed the sector unexpectedly expanding at the fastest pace since mid-2022. As a result, traders have scaled back expectations for Federal Reserve rate cuts this year, with markets now pricing in just one 25bps cut, down from two earlier in the week.

The yield on the US 10-year Treasury note rose to around 4.11% on Thursday, marking a fourth consecutive session of gains as investors monitored developments in the US-Iran conflict following the sinking of an Iranian warship by a US submarine off the coast of Sri Lanka. The broader US-Israeli campaign against Iran has now entered its sixth day, keeping markets cautious about further escalation and the risk of a prolonged conflict that could weigh on growth and drive inflation higher. Meanwhile, a report from the New York Times indicated that Iranian operatives had offered to discuss terms for ending the conflict, though Tehran later denied the report. Elsewhere, Treasury Secretary Scott Bessent said President Donald Trump’s recently announced 15% global tariff is expected to take effect later this week. On the economic front, US services activity rose to a more than 3½-year high in February, while private-sector employment growth exceeded expectations.