US 10Y Yield Steadies on Hawkish Fed Signals

The yield on the 10-year US Treasury note held around 4.46% on Thursday after rising nearly 5 basis points in the previous session, as the Federal Reserve kept interest rates unchanged but signaled growing support for rate hikes later this year. Half of FOMC members now expect at least one rate increase, with the central bank sharply raising its inflation forecasts amid the economic impact of the conflict in the Middle East. Meanwhile, Fed Chair Kevin Warsh declined to provide guidance on the next policy move but emphasized that inflation has remained above the Fed’s 2% target for several years and reiterated the central bank’s commitment to restoring price stability. On the geopolitical front, President Donald Trump signed an interim agreement to end the war with Iran and reopen the Strait of Hormuz, though it remains unclear whether Iran has already begun steps to fully reopen the key shipping route.

The yield on the 10-year US Treasury note erased losses to hover at the 4.46% mark on Wednesday after the Federal Reserve held interest rates unchanged and projected the possibility of a rate hike this year. The Summary of Economic Projections showed that nearly half of the FOMC projected that at least one rate hike may be warranted this year, aligned with the upward revision to core inflation and lower expectations of unemployment. The pivot followed a batch of data pointing to higher underlying price growth following the war in the Middle East and its impact on energy prices, although labor market gauges remained robust. Notably, new Chairman Kevin Warsh refrained from penciling in his projections, reflecting continuity to his pushback against forward guidance by the Fed. The Chairman had also called for a smaller balance sheet for the central bank, particularly regarding longer term Treasury notes and bonds.

The yield on the US 10-year Treasury note was little changed at around 4.43% on Wednesday, as traders refrained from taking large positions ahead of the FOMC decision later in the day. The Federal Reserve is widely expected to leave the federal funds rate unchanged, but investors will focus closely on forward guidance and the latest economic projections. The meeting will also be the first chaired by Kevin Warsh, with doubts arising over whether he will submit a “dot” in the FOMC’s quarterly Summary of Economic Projections, which outlines policymakers’ expectations for the future path of interest rates. Markets are currently pricing in at least one 25bps rate hike this year, although those expectations have eased slightly following reports of an interim US-Iran peace deal. The announcement triggered a sharp drop in oil prices and momentarily eased concerns over inflationary pressures.