US 10-Year Yield Holds Decline

The yield on the US 10-year Treasury note hovered around 4.47% on Friday after dropping about 10 basis points in the previous session, as President Donald Trump said a peace agreement with Iran could be signed as soon as this weekend in Europe. His comments sparked a sharp fall in oil prices, easing concerns over persistent inflation and the prospect of central bank interest rate hikes. Meanwhile, data released on Thursday showed US producer prices rose 6.5% year-on-year in May, the highest level since November 2022 and slightly above expectations of 6.4%, highlighting the growing impact of the Middle East energy shock. Coupled with earlier figures showing consumer inflation accelerated to a three-year high, the latest PPI data is likely to reinforce expectations that the Federal Reserve could raise interest rates this year.

The yield on the US 10-year Treasury note was edged down to 4.53% on Thursday, as investors weighed escalating tensions in the Middle East and the latest PPI report. In a further escalation of the conflict, President Trump vowed additional strikes on Iran and threatened to target the country's energy infrastructure, including the key oil export terminal on Kharg Island. Meanwhile, the latest PPI report showed headline producer inflation rising to 2022-highs, although core measures came in below forecasts, echoing the softer-than-anticipated core CPI data released a day earlier. While the energy shock stemming from the conflict with Iran is increasing inflationary pressures, its broader pass-through to underlying price measures has yet to fully materialize. The data did little to alter expectations for Fed policy. Investors continue to anticipate one rate hike this year, possibly in October.

The yield on the US 10-year Treasury note steadied around 4.55% on Thursday as investors continued to track developments in the Middle East while awaiting fresh US economic data for further clues on the Federal Reserve’s policy outlook. The US military said it had completed its latest strikes on Iran, boosting hopes that peace negotiations could resume and easing some concerns about inflationary pressures. Meanwhile, US consumer inflation accelerated in May to its fastest pace in more than three years due to soaring energy costs, though the reading came in line with expectations. Traders modestly scaled back expectations for Federal Reserve rate hikes this year, although a quarter-point increase in December remains fully priced. Investors are now turning their attention to the latest producer inflation and weekly jobless claims data for additional signals on the future path of Fed policy.