US 10-Year Yield Steadies

The yield on the benchmark 10-year US Treasury note steadied around 4.45% on Wednesday as investors adopted a cautious stance amid stalled US-Iran peace negotiations and renewed tensions across the Middle East. According to the US Central Command, Iran launched ballistic missiles toward neighboring countries, while US forces responded with strikes on Qeshm Island. The prolonged conflict has continued to support higher energy prices, raising concerns that inflationary pressures could persist and strengthening expectations that the Federal Reserve may keep interest rates elevated for longer. Reinforcing that outlook, economic data released on Tuesday showed US job openings climbed in April to their highest level in nearly two years. Investors are now awaiting the release of private-sector payroll figures later on Wednesday, with particular focus on Friday’s nonfarm payrolls report for further guidance.

The yield on the 10-year US Treasury note rose was above 4.45% on Tuesday, halting the slide that bottomed at a three-week low in the prior week as the latest economic data favored restrictive policy by the Federal Reserve. The JOLTS indicated that job openings were well above expectations at their highest in over one year in April, consistent with robust labor data for the period in muted levels of jobless claims. On top of that, manufacturing activity was also above expectations in May per the ISM PMI, while prices continued to surge. Rate futures continued to show a portion of the market positioned for a rate hike by the Federal Reserve this year, even though the new FOMC Chairman Kevin Warsh had previously advocated for lower rates. The hawkish outlook for the central bank also persisted despite oil prices remaining below their peaks, as the continuous impasse between Iran and the US delayed expectations of restored energy supply from the region.

The yield on the US 10-year Treasury note edged down to 4.43% on Tuesday as a modest retreat in oil prices offered some relief, although sentiment remained sensitive to developments in the Middle East. US President Trump said Israel and Hezbollah had agreed to halt attacks against each other in Lebanon and that discussions with Iran were ongoing. On Monday, borrowing costs had risen after Iran’s Tasnim news agency reported that Iranian negotiators were pausing talks with the US following Israeli strikes in Lebanon, with Tehran also reportedly considering a full closure of the Strait of Hormuz. Investors are now awaiting key labour market data later this week, including the US jobs report, which is expected to help shape expectations for Federal Reserve policy under the new chair, Kevin Warsh. Traders are currently pricing in around 17 basis points of rate hikes by year-end, implying roughly a 70% probability of a 25bps increase, with a full hike priced in by March 2027.