US 10-Year Yield Hits 1-Year High

The yield on the US 10-year Treasury note climbed above 4.5% on Friday, reaching its highest level in a year as mounting inflationary pressures tied to the Iran war strengthened expectations for a Federal Reserve interest rate hike later this year. Data released earlier in the week showed US wholesale inflation accelerated at its fastest pace since 2022 in April, while consumer prices recorded their largest increase since 2023 amid renewed cost pressures linked to the energy shock caused by the conflict. Retail sales growth also slowed in line with expectations but continued to reflect resilient consumer spending. Markets have now fully priced out any possibility of a Fed rate cut this year, while some traders are increasingly betting on a potential rate hike by December. Meanwhile, investors continued to monitor the second day of high-level talks between President Donald Trump and Chinese President Xi Jinping.

The yield on the US 10-Year Treasury note edged lower to 4.45% on Thursday after reaching its highest level since July in the previous session, as investors continued to evaluate the political backdrop and its implications for the economy and monetary policy. Oil prices stabilised and investors also focused on the summit between US President Trump and Chinese President Xi. On the economic front, US retail sales slowed as expected but still indicated resilient consumer spending. Headline retail sales rose 0.5% in April, while the core retail sales measure, which feeds directly into GDP calculations, also increased by 0.5%. Earlier this week, both the CPI and PPI reports pointed to renewed inflationary pressures stemming from the energy shock triggered by the outbreak of war in Iran. Investors currently expect the Fed to keep the federal funds rate unchanged through the remainder of the year, although markets continue to price in around a 28% probability of a 25bps rate hike in December.

The yield on the US 10-year Treasury note hovered around 4.46% on Thursday, staying near its highest level since June last year as accelerating US inflation linked to the Iran war reinforced expectations that the Federal Reserve will maintain higher interest rates for longer or potentially implement another hike. Data released Thursday showed US wholesale inflation rose in April at its fastest pace since 2022, following Tuesday’s report indicating consumer inflation climbed to 3.8% last month, the highest reading since May 2023. Markets have now fully priced out any possibility of a Fed rate cut this year and are increasingly factoring in a higher probability of a rate increase before year-end. Meanwhile, the US Senate narrowly confirmed Kevin Warsh as Federal Reserve chair on Wednesday, with investors assessing whether he will maintain the central bank’s independence amid political pressure.