Treasury Yields Approach June Highs Again

The yield on the US 10-year Treasury note remained elevated above 4.4% on Tuesday, nearing the highs reached in March, as tensions in the Middle East showed little sign of easing and rising oil prices continued to fuel inflationary pressures. Headline inflation accelerated to 3.8% in March, the highest level since March 2023 and above market expectations of 3.7%, driven largely by higher gasoline prices. Core inflation also surprised to the upside, rising to 2.8%. US President Donald Trump said the ongoing ceasefire was “on life support” after Tehran delivered what he described as an “unacceptable” response to Washington’s proposal to end the conflict. Against this backdrop, the Fed is widely expected to keep interest rates on hold throughout the year, while markets currently price in a roughly 27% probability of a 25bps rate hike in December.

The yield on the US 10-year Treasury note rose to around 4.42% on Tuesday, reaching a one-week high as President Donald Trump cast doubt on the durability of the US-Iran ceasefire after rejecting Tehran’s latest peace proposal, keeping inflation risks elevated. Reports also suggested that President Trump is set to meet with his national security team to evaluate a potential resumption of military operations, alongside renewed consideration of plans to escort commercial vessels through the Strait of Hormuz. The ongoing conflict has kept oil prices elevated, reinforcing inflationary pressures and supporting expectations that interest rates may need to remain higher for longer to contain price growth. Meanwhile, investors were awaiting April’s consumer inflation report for further insight into how the Iran conflict is impacting the economy and shaping the Federal Reserve’s policy path. The Fed is widely expected to keep the federal funds rate unchanged through the remainder of the year.

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.