US 10Y Yield Nears 11-Month High

The yield on the US 10-year Treasury note firmed around 4.46% on Wednesday, approaching its highest level since June last year as stronger-than-expected US inflation data reduced expectations for Federal Reserve interest rate cuts. US consumer inflation rose 3.8% in April, above forecasts of 3.7% and the highest since May 2023, as surging energy prices linked to the Middle East conflict added to price pressures. Markets have largely priced out any chance of Fed rate cuts this year, while expectations for a quarter-point rate hike in December have climbed to 35%. Investors are now awaiting the latest producer inflation data for further signals on how the Iran war is affecting the US economy. Meanwhile, oil prices remained elevated as diplomatic efforts to resolve the US-Iran conflict stalled, keeping inflation risks in focus.

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.