Treasury Yields Approach June Highs Again

The yield on the US 10-year Treasury note rose about 6bps to 4.54% on Friday after a stronger-than-expected jobs report reinforced expectations that the Fed may need to raise interest rates again, with markets now almost fully pricing in a quarter-point hike by year-end. The US economy added 172,000 jobs in May, well above forecasts of 85,000, while employment figures for March and April were revised higher. The unemployment rate remained unchanged at 4.3%, and average hourly earnings rose 0.3% on the month, in line with expectations. The report reinforced the view that the labour market remains resilient, with job gains appearing broadly based across sectors. Against a backdrop of elevated inflationary pressures and inflation continuing to run above the Fed's target, the data strengthened the case for monetary tightening later this year. Meanwhile, the 2-year Treasury yield, which is more sensitive to changes in interest rate expectations, rose by about 10bps to 4.16%.

The yield on the US 10-year Treasury note was little changed at around 4.48% on Friday as investors awaited the May employment report for further clues on labor market strength and the likely path of Federal Reserve policy. A string of labor market indicators released this week pointed to continued resilience in the US economy, reinforcing expectations that the Fed could raise interest rates before year-end as policymakers contend with inflationary pressures driven by higher energy costs linked to the Middle East conflict. Meanwhile, President Donald Trump said peace negotiations were nearing their final stage and is reportedly reluctant to reenter a full-scale war with Iran despite recent hostilities. However, Iranian Foreign Minister Abbas Araghchi said no meaningful progress had been made in the talks, while Iran-backed Hezbollah rejected a US-mediated ceasefire proposal between Israel and Lebanon, keeping geopolitical risks elevated.

The yield on the US 10-year Treasury note fell about 4bps to 4.46% on Thursday, nearly reversing the 6bps increase recorded in the previous session. Treasury prices benefited from a decline in oil prices as hopes grew that a ceasefire agreement between Israel and Lebanon could pave the way for a broader deal with Iran. Despite the improvement in sentiment, uncertainty remains elevated and the situation continues to be highly fragile, with oil prices still well above pre-conflict levels. Investors also continue to price in the possibility of a Federal Reserve rate hike before year-end, potentially as early as October, as higher energy prices add to inflationary pressures. Meanwhile, recent labor market data have pointed to a resilient US economy, with employment conditions strengthening over the past two months. Friday's jobs report is expected to provide further insight into the underlying strength of the labor market and its implications for monetary policy.