US 10-Year Treasury Yield Set for Strongest Weekly Gain Since April

The yield on the US 10-year Treasury note rose again to 4.16% on Friday, recovering from an early-session dip as the continued surge in energy prices, particularly oil, renewed concerns about an inflation spiral, offsetting the impact of weak US labor data. WTI crude futures approached $88 per barrel, the highest level since September 2023, as President Trump demanded that Iran surrender while the war with the Islamic Republic entered its seventh day, fueling disruptions in energy markets. Kuwait has begun cutting production at some oil fields, while Qatar warned that Gulf energy exporters could shut down production within weeks. Meanwhile, the US economy unexpectedly shed 92K jobs last month, while the unemployment rate edged up to 4.4%. US retail sales also declined in January, partly due to weaker vehicle purchases. Traders now expect the Federal Reserve to begin cutting borrowing costs in July, with markets also assigning an even probability to a second cut or a pause by December.

The yield on the US 10-year Treasury note reversed earlier gains and fell to 4.12% on Friday, after unexpectedly weak jobs and retail sales data raised concerns about the strength of the US economy. The US economy unexpectedly shed 92K jobs last month, while the unemployment rate edged up to 4.4%. Meanwhile, retail sales declined 0.2%. As a result, traders raised again bets for the Fed's rate cuts this year. The odds of a July rate cut are now close to 48%, while a 25bps reduction in September is fully priced in. Earlier in the session, yields had been rising amid growing inflation concerns fueled by the rally in energy prices. Despite the later pullback, the benchmark Treasury yield remains about 14 basis points higher for the week.

The yield on the US 10-year Treasury note rose for a fifth consecutive session to 4.17% on Friday, bringing the weekly increase to nearly 20 basis points, the largest jump since April. The move reflects growing inflation concerns driven by the rally in energy prices, prompting investors to scale back expectations for Fed rate cuts to just one 25bps reduction this year, down from two anticipated earlier in the week. The conflict with Iran has entered its seventh day with no signs of de-escalation. Shipping traffic through the Strait of Hormuz has nearly halted, while the Qatar energy minister told the Financial Times that the conflict could force Gulf energy exporters to shut down production within weeks, potentially pushing oil prices toward $150 per barrel. Meanwhile, traders are awaiting the upcoming US jobs report for further signals on the labor market. Economists expect hiring to have moderated last month following a strong January reading.