US 10-Year Yield Holds Firm

The yield on the 10-year US Treasury note fell to below 4.40% on Thursday, the lowest in seven weeks, as lower inflation concerns limited the likelihood of multiple rate hikes by the Fed this year. The core PCE price index was softer than expected in May and the headline rate increased less than expected. The results softened pro-inflationary risks as fresh oil supply from the Middle East lowered energy prices. The US and Iran signaled progress in talks after their memorandum of understanding halted the naval blockade, and tanker flows through the Strait of Hormuz picked up. Rate futures showed that market trimmed positions that reflect more than one rate hike by the Fed this year. Still, underlying inflation gauges remained elevated and both personal spending and beat expectations. Evidence of robust growth and labor backdrops maintained the outlook of a hike by the Fed, aligned with the hawkish pivot from the last FOMC projections.

The yield on the US 10-year Treasury note hovered around 4.4% on Thursday after falling roughly 10 basis points in the previous session to its lowest level in more than six weeks, as progress in US-Iran peace negotiations pushed oil prices back to pre-conflict levels and eased inflation concerns. Investors also continued to evaluate the outlook for Federal Reserve policy ahead of a key US inflation report that could help shape expectations for interest rates. Last week, the Fed signaled growing support for tighter monetary policy, with Chair Kevin Warsh reaffirming his commitment to bringing inflation under control. Market participants are now awaiting the latest PCE price index report, the Fed’s preferred measure of inflation. Other major releases due include final first-quarter GDP data, May personal income and preliminary durable goods orders figures, as well as weekly jobless claims for the period ending June 20.

The yield on the US 10-year Treasury note fell for a 2nd consecutive session to 4.45% on Wednesday as easing tensions in the Middle East helped drive oil prices lower and alleviated concerns about inflationary pressures. Brent retreated to levels seen before the US-Iran conflict amid signs of improving tanker transit through the Strait of Hormuz. Adding to the positive sentiment, President Trump said in a Truth Social post that Iran had informed the US that no tolls, insurance fees, or other charges would be imposed on vessels passing through the strategic waterway. Investors are now turning their attention to the upcoming PCE inflation report, the Fed's preferred measure of inflation, for further clues on the outlook for prices and monetary policy. Meanwhile, the Fed's hawkish tone last week has led markets to increase expectations for interest-rate hikes this year. Traders currently assign a roughly 68% probability that rates will be increased in September, up from 29% a week ago.