US 10-Year Yield Rises on Iran Deal Uncertainty

The yield on the US 10-year Treasury note climbed to around 4.47% on Monday, recovering from three-week lows as prospects for a longer-term ceasefire agreement between the US and Iran remained uncertain. Over the weekend, Washington and Tehran exchanged proposals seeking revisions to a draft deal that would extend the ceasefire and reopen the Strait of Hormuz, though there were few signs that the negotiations were making meaningful progress. Meanwhile, investors turned their attention to the highly anticipated US nonfarm payrolls report, which could offer fresh insight into labor market conditions and the future path of Federal Reserve policy. Markets are increasingly betting on the possibility of a Fed rate hike before the end of the year after inflation accelerated, marking a significant shift from earlier expectations of interest rate cuts.

The yield on the US 10-year Treasury note hovered around 4.45% on Friday, remaining near three-week lows, though still up roughly 7 bps for the month, as investors continued to monitor developments in the Middle East. Signs have emerged that the US and Iran may be closer than ever to reaching an agreement, with recent reports indicating that both countries have reached a preliminary understanding to extend a ceasefire by 60 days and begin discussions over the future of Tehran’s nuclear program, although President Trump has yet to formally endorse the terms. Oil prices have declined, helping to ease inflationary pressures. Data released on Thursday showed that both headline and core PCE monthly inflation came in below expectations although annual readings remained well above the Fed’s target at 3.8% and 3.3%. Investors currently expect the Fed to keep the federal funds rate unchanged through year-end, though markets still assign roughly a 46% probability to a rate hike in December.

The yield on the 10-year US Treasury note eased to around 4.44% on Friday, touching its lowest level in more than two weeks as reports of a tentative peace agreement between the US and Iran helped ease concerns over inflation and interest rates. Washington and Tehran have reportedly agreed in principle to extend their ceasefire by 60 days and begin negotiations on Iran’s nuclear program, while potentially allowing unrestricted shipments through the Strait of Hormuz. However, the report noted that President Donald Trump has yet to approve the proposed terms. Meanwhile, the latest US PCE price index data came in softer than expected, helping reduce fears that the recent energy shock would significantly worsen the inflation outlook. Even so, markets continue to expect the Federal Reserve to keep interest rates unchanged well into next year.