Treasury Yields Edge Higher

The yield on the US 10-year Treasury note edged up to 4.50% on Tuesday, reaching its highest level in two weeks, as a renewed rise in oil prices fueled inflation concerns. Oil gained more than 1% after an LNG carrier was struck by a projectile while exiting the Strait of Hormuz, underscoring the fragile security situation in the Middle East and the risks to global energy supplies. The rebound in oil prices slightly increased expectations that the Federal Reserve could raise interest rates, with market-implied odds of a rate hike as early as September rising to around 58%, up from 56% the previous day. Investors are now awaiting the release of the FOMC meeting minutes on Wednesday for further clues on the Fed's policy outlook, after the central bank adopted a more hawkish tone at its June meeting.

The yield on the US 10-year Treasury note held around 4.48% on Tuesday as investors awaited the minutes of the Federal Reserve’s June meeting for fresh clues on the outlook for interest rates. Data released last week showed a sharp slowdown in US job growth in June, alongside downward revisions to payroll figures for the previous two months, leading markets to scale back expectations for near-term rate hikes. Meanwhile, the latest ISM Services PMI indicated a modest slowdown in services sector activity that largely matched forecasts, while price pressures eased to their lowest level since February and employment posted its strongest gain since late 2021. Markets are now pricing in roughly a 50% chance of a Fed rate increase in September, down from about two-thirds before the latest employment report. Investors will also monitor US trade deficit data due later in the day.

The yield on the US 10-year Treasury note pared earlier losses to trade slightly lower at around 4.48% on Monday as investors returned from the long holiday weekend and digested the latest economic data. The ISM Services PMI pointed to a modest slowdown in services sector growth, broadly in line with expectations, while price pressures eased to their lowest level since February and employment rose by the most since late 2021. The report followed last week's softer-than-expected jobs data, which prompted investors to lower bets on Fed rate hikes this year. Meanwhile, oil prices have retreated to pre-conflict levels, helping to ease concerns over renewed inflationary pressures. Markets are now pricing in a 56% probability of a Fed rate cut as early as September, down from around 64% before the jobs report was released. Investors will turn their attention to the release of the FOMC minutes later this week for further clues on the Fed's policy outlook.