Treasury Yields Back on the Rise as Middle East Uncertainty Lingers

The yield on the US 10-year Treasury note was up to 4.37% on Tuesday, reversing part of the previous session’s 4bps decline, as traders continued to navigate the conflict with Iran and assess prospects for de-escalation. Reports point to ongoing communication and diplomatic efforts to end the war, but fighting has persisted despite President Trump’s announcement of a five-day pause. Adding to concerns, the WSJ reported that Saudi Arabia and the UAE are moving closer to joining the conflict against Tehran. Iran has continued its attacks on US bases in the Gulf and maintains that no negotiations with the US are underway. Meanwhile, oil prices are still rising, keeping pressure on inflation, with traders no longer expecting the Fed to deliver any rate cuts this year. Last week, the central bank kept the federal funds rate unchanged but still indicated the possibility of a 25bps rate cut in 2026, followed by another in 2027.

The yield on the US 10-year Treasury note climbed back above 4.37% on Tuesday, reversing part of the previous session’s decline as Iran denied any talks to end the conflict, pushing back against President Donald Trump’s claims. Tehran also reported new attacks on US targets, while Israel continued strikes against Iran, keeping tensions elevated. On Monday, Treasury yields had retreated after Trump postponed planned strikes on Iranian energy infrastructure for five days, citing productive discussions with Iran over the past two days. The outcome of any talks and the potential reopening of the Strait of Hormuz remain highly uncertain, while Middle Eastern energy capacity may take time to return to prior levels. This raises the risk of higher inflation in the coming months and the possibility of interest rate hikes from major central banks. Investors now turn their focus to upcoming US manufacturing data for fresh cues on how businesses are faring under heightened geopolitical risks.

The yield on the US 10-year Treasury note swung as traders digested the latest developments in the conflict with Iran. President Trump said the US and Iran had held “productive” talks, prompting him to order a five-day pause on strikes against key Iranian energy infrastructure. The move follows a 48-hour deadline previously given to Iran to fully reopen the Strait of Hormuz, which was set to expire later today. However, Iran’s Fars News Agency said there has been no communication with the US, either directly or via intermediaries. The benchmark yield initially fell after President Trump’s announcement, later reversed course and moved to 4.39%, its highest level since July last year, and then fell again to 4.33%. Persistent concerns about inflation, driven by a surge in oil prices, have led traders to scale back expectations for Federal Reserve rate cuts this year.