Long-term Yields Surge

The yield on the 10-year US Treasury note fell to 4.60% on Wednesday from the 16-month high of 4.7% in the previous session after Washington signaled it is close to signing an agreement with Iran to end their conflict, taming pro-inflationary risks. President Trump stated the US was on the final stages of talks with Tehran and three supertankers crossed the Strait of Hormuz with full cargoes, driving oil and fuel prices to retreat. The surge in energy inflation this year had already shown signs of spreading to core areas of the economy, resulting in hawkish dissents in the last Fed rate decision. Minutes from said decision added that a majority of FOMC members noted that it may be appropriate to raise rates to tame inflation this year if underlying inflation gauges remain above 2%. The Fed is still expected to keep the federal funds rate unchanged for the remainder of the year, although market-implied odds of a rate hike in December currently stand at around 50%.

The yield on the US 10-year Treasury note edged slightly lower to 4.65% on Wednesday, after reaching a 16-month high of 4.7% in the previous session, as investors continued to assess the inflationary impact of the energy shock triggered by the war with Iran. The Strait of Hormuz remains largely closed, keeping oil prices roughly 50% above pre-war levels and fueling concerns over sustained inflationary pressures. Higher energy costs are expected to continue to add upward pressure to consumer prices, likely forcing central banks to maintain tighter monetary policy or even resume interest rate hikes, while also complicating fiscal conditions. The Fed is still expected to keep the federal funds rate unchanged for the remainder of the year, although market-implied odds of a rate hike in December currently stand at around 50%. Investors are now awaiting the release of the latest FOMC minutes later in the day for further insight into policymakers’ outlook on inflation and interest rates.

The yield on the US 10-year Treasury note held its recent advance to around 4.67% on Wednesday, hovering at 16-month highs as growing concerns over an energy-driven inflation shock fueled expectations that the Federal Reserve could raise interest rates. President Donald Trump warned that the US may resume strikes on Iran within “two or three days” if Tehran failed to agree to Washington’s peace terms. The prolonged conflict has effectively kept the strategic Strait of Hormuz closed to shipping traffic, pushing oil prices higher and intensifying inflationary pressures worldwide. As a result, market expectations have shifted away from anticipated Federal Reserve rate cuts this year toward the possibility of another rate hike before year-end. Meanwhile, Philadelphia Fed Bank President Anna Paulson said she supported keeping interest rates unchanged for now and stressed that any reduction in borrowing costs would depend on sustained progress in lowering inflation.