Treasury Yields Fall for 3rd Session

The yield on the US 10-year Treasury note eased slightly to 4.56% on Friday, holding losses from the two prior sessions and reaching its lowest level in about a week, as inflation concerns temporarily subsided. Investor sentiment improved after renewed optimism that the US and Iran could reach an agreement and potentially reopen the Strait of Hormuz, helping oil prices retreat from recent highs. Nevertheless, the situation remains highly fragile and volatile. Despite this week’s pullback, oil prices are still roughly 50% above pre-conflict levels, continuing to fuel inflationary pressures and reinforcing a cautious stance among major central banks. Minutes from the latest FOMC meeting showed that most policymakers believe additional rate hikes could still be necessary if inflation remains persistently above the Fed’s 2% target. Markets have increasingly priced in the likelihood of a 25-basis-point rate hike by the end of the year.

The yield on the US 10-year Treasury note steadied around 4.57% on Friday after sliding for two straight session, as conflicting signals on the progress of US-Iran peace negotiations kept markets cautious about inflationary risks and interest rate hike prospects. Tehran said the latest US proposal had partially narrowed differences between the two sides, though comments from Iran’s Supreme Leader regarding the country’s uranium stockpile, along with disagreements over tolls in the Strait of Hormuz, continued to cloud prospects for a breakthrough agreement. Meanwhile, minutes from the latest FOMC meeting showed that most policymakers believe additional rate hikes could still be appropriate if inflation remains persistently above the Federal Reserve’s 2% target. Even so, markets broadly continue to expect rates to remain unchanged through the rest of the year, although traders are currently pricing in roughly a 40% probability of a 25 basis-point increase in December.

The yield on the US 10-year Treasury note rose to 4.62% on Thursday, reversing the previous session’s decline, as markets continued to track developments in the Middle East. Mixed signals have fuelled doubts that a US–Iran deal can be reached soon or that traffic through the Strait of Hormuz will be fully restored, pushing oil prices higher again and reigniting inflation concerns. Reuters reported that Iran’s Supreme Leader has issued a directive stating that the country’s near-weapons-grade uranium should not be sent abroad, hardening Tehran’s position on a key US demand in peace talks. Meanwhile, minutes from the latest FOMC meeting showed that a majority of policymakers believe additional rate hikes may be warranted if inflation remains persistently above the Federal Reserve’s 2% target. Markets still broadly expect rates to remain unchanged for the rest of the year, although traders are currently pricing in roughly a 40% chance of a 25bps hike in December.