Treasury Yields Fall on Economic Worries

The yield on the US 10-year Treasury note fell about 8bps to 4.36% on Monday, easing from the July 2025 highs reached on Friday, as investors focused on developments in the Middle East and their implications for growth and the monetary policy outlook. Oil prices continued to climb to fresh highs not seen since 2022, reinforcing expectations that higher energy costs could weigh on the economy and limit the Federal Reserve’s room to raise interest rates. As a result, the probability of a Fed rate hike in 2026 dropped to around 20%, from roughly 35% at the end of last week. Attention also turns to a busy economic calendar, with key releases including the ISM Manufacturing PMI and the jobs report, which should offer further insight into the strength of the economy.

The yield on the US 10-year Treasury note eased to around 4.4% on Monday but remained near its highest levels since July 2025, as investors weighed the escalating Middle East conflict and its impact on inflation, growth, and interest rates. Tensions intensified after Trump said he could “take the oil in Iran” and seize its export hub on Kharg Island, echoing the US military operation in Venezuela earlier this year. The US is also reportedly preparing for weeks of ground operations in Iran after additional troops arrived in the region. Meanwhile, Iran-backed Houthi militants in Yemen joined the conflict after targeting Israel over the weekend. Surging oil prices from the Iran war bolstered hawkish bets on Federal Reserve policy, with markets speculating on a possible rate increase this year. Investors now look ahead to key US jobs data this week, including the JOLTS and ADP private payrolls reports. The March jobs report will also be released on Friday despite a holiday.

The yield on the US 10-year Treasury note rose to as high as 4.48% on Friday, its highest level since July 2025, before retreating to 4.42%. Traders remain concerned about the impact of the war with Iran on both inflation and economic growth, as prospects for de-escalation remain uncertain and oil prices continue to surge. Oil is trading close to its 2022 highs, with markets bracing for the conflict to extend into April as attacks persist across the Middle East. This comes despite US President Trump’s announcement of a 10-day pause on attacks targeting Iran’s energy infrastructure, through April 6, aimed at allowing more time for negotiations. However, some investors fear this window could also be used by the US to build up additional forces in the region. Meanwhile, traders have scaled back expectations for Fed rate cuts this year, although the central bank still sees one 25bps cut in 2026.