Treasury Yields March Higher

The yield on the US 10-year Treasury note climbed to 4.51% on Monday, extending May's nearly 6-basis-point increase. The move came as oil prices continued to rise after Iranian media reported that Tehran had suspended communications with Washington following attacks in Lebanon and was moving to fully close the Strait of Hormuz. Earlier exchanges of military strikes between the US and Iran had already raised doubts about the prospects for a diplomatic agreement. A prolonged closure of the Strait of Hormuz would add to inflationary pressures by driving energy prices higher, reinforcing expectations that the Fed will keep interest rates elevated for longer. The odds for a rate hike by the Fed in December currently stand above 60%. Separately, former Fed Chair Powell warned that efforts by the Trump administration to pressure the central bank into cutting rates could undermine public confidence in its independence.

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.