Treasury Yields Rise

The yield on the US 10-year Treasury note rose toward 4.59% on Monday, extending Friday's gains to its highest level in nearly two months, while the two-year Treasury yield climbed to its highest level since early 2025. The US and Iran exchanged fresh military strikes, and conflicting reports persisted over whether the Strait of Hormuz remains open to shipping. The resulting rise in oil prices heightened concerns that renewed energy cost pressures could fuel inflation. Markets are also awaiting this week's US CPI and PPI reports for further insight into inflation trends, as well as Fed Chair Warsh's testimony before Congress for additional clues on the central bank's policy path. Traders are currently pricing in at least one Federal Reserve interest rate hike this year, with the probability of a September increase hovering around 71%.

The yield on the US 10-year Treasury note climbed to around 4.59% on Monday, hovering near seven-week highs as renewed missile strikes between the US and Iran drove oil prices higher, reinforcing expectations of interest-rate hikes to contain inflation. The US carried out its fourth strike in a week against Iran on Sunday in retaliation for an Iranian attack on a Cyprus-flagged container ship. Investors are also awaiting key US inflation data this week for further clues on the Federal Reserve's policy outlook. Markets currently expect the Fed to deliver one more interest-rate hike before the end of the year. Minutes from the Fed’s June meeting, released last week, showed that a few policymakers saw a case for raising rates, though they ultimately supported keeping policy unchanged. Meanwhile, Fed Chair Kevin Warsh is scheduled to make his first appearance before the US Congress on Tuesday and Wednesday.

The yield on the US 10-year Treasury note eased to around 4.54% on Friday, marking a second consecutive session of declines as lower oil prices helped ease inflation concerns and reduced fears of aggressive policy tightening. The move followed reports that the US and Iran will continue peace negotiations despite a recent escalation in hostilities. Even so, markets continue to expect the Federal Reserve to raise interest rates at least once this year. Meanwhile, New York Fed President John Williams said that, among the factors driving inflation in the US, he is most focused on demand fueled by artificial intelligence. Separately, Fed Chair Kevin Warsh announced the leadership of five task forces to review the US central bank’s approach to key areas of policymaking, signaling potential changes in how the Federal Reserve conducts monetary policy.