US 10-Year Yield Hits Near 1-Month High

The yield on the 10-year US Treasury note rose to 4.5% on Friday, trimming the 10bps decline from the previous session on fresh uncertainty over the Iran deal signaled by President Trump. The US President condemned reports that Iran struck an Indian ship and denied other reports that Iran had issued different concessions than those agreed, jeopardizing the deal that would restore energy flows from the Middle East. Oil and fuel prices trimmed their sharp decline to limit inflationary relief. Bets that the Federal Reserve will raise interest rates this year were consolidated earlier after both consumer and producer inflation rose to multi-year highs in May. In the meantime, the University of Michigan consumer confidence survey showed that inflation expectations eased from their peaks in the first half of June following the top in energy prices.

The yield on the US 10-year Treasury note hovered around 4.47% on Friday after dropping about 10 basis points in the previous session, as President Donald Trump said a peace agreement with Iran could be signed as soon as this weekend in Europe. His comments sparked a sharp fall in oil prices, easing concerns over persistent inflation and the prospect of central bank interest rate hikes. Meanwhile, data released on Thursday showed US producer prices rose 6.5% year-on-year in May, the highest level since November 2022 and slightly above expectations of 6.4%, highlighting the growing impact of the Middle East energy shock. Coupled with earlier figures showing consumer inflation accelerated to a three-year high, the latest PPI data is likely to reinforce expectations that the Federal Reserve could raise interest rates this year.

The yield on the US 10-year Treasury note was edged down to 4.53% on Thursday, as investors weighed escalating tensions in the Middle East and the latest PPI report. In a further escalation of the conflict, President Trump vowed additional strikes on Iran and threatened to target the country's energy infrastructure, including the key oil export terminal on Kharg Island. Meanwhile, the latest PPI report showed headline producer inflation rising to 2022-highs, although core measures came in below forecasts, echoing the softer-than-anticipated core CPI data released a day earlier. While the energy shock stemming from the conflict with Iran is increasing inflationary pressures, its broader pass-through to underlying price measures has yet to fully materialize. The data did little to alter expectations for Fed policy. Investors continue to anticipate one rate hike this year, possibly in October.