US Treasury Yields Fall for 2nd Session

The yield on the US 10-year Treasury note edged down by nearly 2 basis points to below 4.21% on Tuesday, as traders braced for the Federal Reserve’s two-day policy meeting amid an escalation in the conflict with Iran. Oil prices moved higher again as tensions intensified, with Iran stepping up attacks on energy infrastructure across the Persian Gulf, while Israel reported it had killed Iran’s security chief. Meanwhile, the Federal Reserve is widely expected to keep the fed funds rate unchanged when it announces its decision tomorrow. However, all eyes will be on the updated projections at a time when rising oil prices pose risks to both inflation and economic growth, while the labour market shows signs of softening.

The yield on the US 10-year Treasury note rose to around 4.24% on Tuesday after a sharp decline in the previous session, as investors continued to gauge the impact of the Middle East conflict and volatile oil prices on the economy and inflation. Treasury yields had pulled back on Monday as lower oil prices eased inflation concerns following the safe passage of several tankers through the Strait of Hormuz. Treasury Secretary Scott Bessent also said the US is allowing Iran to continue shipping crude via Hormuz, while President Donald Trump is seeking support from other countries to safeguard commercial activity in the waterway. Meanwhile, the Federal Reserve is widely expected to hold interest rates steady on Wednesday as policymakers navigate uncertainties stemming from the Iran war. Investors will closely watch the central bank’s assessment of the recent surge in energy prices and its implications for inflation and borrowing costs.

The yield on the US 10-year Treasury note edged down about 4 bps to 4.24% on Monday, easing after a 15 bps surge to more than four-week highs last week, as traders continue to assess the conflict with Iran and its impact on inflation and the fiscal outlook. Oil prices eased after Treasury Secretary Bessent said the US is allowing Iranian oil tankers to transit the Strait of Hormuz, while President Trump is urging other nations to help ensure the waterway remains open. Still, uncertainty persists over when the conflict could end. The US says it is in talks with Iran, although Tehran has denied claims that it is seeking a truce. Meanwhile, the Fed will announce its monetary policy decision later this week. While no change to the federal funds rate is expected, investors will closely watch policymakers’ assessment of the recent spike in energy prices and its impact on inflation and borrowing costs. Markets are currently pricing in only one 25bps rate cut, likely not before December.