US 10-Year Yield Steadies After Volatile Session

The yield on the US 10-year Treasury note stabilized around 4.45% on Tuesday after experiencing significant fluctuations in the previous session, as investors weighed a deadlock in US-Iran peace negotiations while awaiting key US labor market data. On Monday, Iranian media reported that Tehran had suspended communications with Washington in response to Israeli attacks in Lebanon. Meanwhile, President Donald Trump said negotiations are continuing and indicated that a memorandum of understanding with Iran to reopen the Strait of Hormuz could be reached within the next week. Rising energy-driven inflation has led markets to price in the possibility of a Federal Reserve rate hike before the end of the year. Investors are now focused on Tuesday’s JOLTS job openings report, ahead of the closely watched US monthly employment data on Friday, for further guidance on the Fed’s policy trajectory.

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.