US Treasury Yields Advance Amid US-Iran Setback

The yield on the US 10-year Treasury note climbed around 5bps to 4.4% on Monday, as renewed tensions in US-Iran negotiations pushed oil prices higher and reignited inflation concerns. Sentiment deteriorated after President Trump rejected Iran’s response to his proposal, warning that the ceasefire was on “life support,” further fuelling fears of prolonged geopolitical instability in the Middle East. Meanwhile, US inflation data due tomorrow will be closely watched for further clues on the Fed’s next policy steps. The Fed is widely expected to keep the federal funds rate unchanged this year, while investors currently see a 31% chance of a rate hike in March. Investors were also looking ahead to a summit between US President Trump and Chinese President Xi Jinping expected later this week. According to US officials, the two leaders are set to discuss Iran, Taiwan, artificial intelligence, nuclear weapons, and critical minerals.

The yield on the US 10-year Treasury note climbed to around 4.39% on Monday, reversing the previous session’s decline as ongoing US-Iran tensions kept inflation risks in focus. President Donald Trump rejected Iran’s response to his peace proposal as “TOTALLY UNACCEPTABLE,” with negotiations stalled over how to end the 10-week conflict. Reports indicated that Tehran had offered to transfer part of its highly enriched uranium stockpile to a third country, while refusing to dismantle its nuclear facilities. On the economic front, data released Friday showed US nonfarm payrolls increased by 115,000 in April, well above expectations for a 62,000 gain, reinforcing expectations that the Federal Reserve will keep interest rates unchanged this year. Investors are now awaiting April US inflation data for further clues on how higher oil prices are feeding through to broader price pressures in the economy.

The yield on the US 10-year Treasury note fell to 4.35% on Friday, approaching the two-week lows touched earlier in the week, as developments in the Middle East continued to dominate investor sentiment. Uncertainty persists over how quickly the US and Iran can reach an agreement to end the conflict, with US Secretary of State Marco Rubio saying Washington expects a response from Tehran on Friday regarding a proposal to end the war. Although President Trump said the ceasefire remains in effect, both the US and Iran have reportedly exchanged fire in the Strait of Hormuz. Meanwhile, the latest jobs report showed the US economy added 115K jobs last month, nearly double market expectations of 62K. In addition, the Michigan Consumer Sentiment survey showed confidence fell to a record low. Markets continue to expect the Fed to keep interest rates largely unchanged through the rest of the year, while pricing in roughly a 40% chance of a rate hike by April 2027.