Treasury Yields Fall Sharply after CPI

The yield on the US 10-year Treasury note fell about 6 basis points to 4.57% on Tuesday, retreating from the two-month high of 4.62% reached in the previous session, as a softer-than-expected CPI report prompted investors to scale back bets on Fed tightening this year. Both headline and core inflation came in below forecasts, at 3.5% and 2.6%, respectively. Meanwhile, the CPI fell 0.4% from May, as the ceasefire between the US and Iran weighed on oil prices and eased inflationary pressures. Core CPI was unchanged from the previous month. Following the data release, traders priced in a nearly 60% probability of a Fed rate hike in September, down from around 70% the previous day. Meanwhile, the yield on two-year Treasuries which are sensitive to the near-term outlook for Fed monetary policy, fell as much as 14bps to 4.14% and was headed for its biggest one-day decline since February

The yield on the US 10-year Treasury note held around 4.62% on Tuesday, hovering near two-month highs as escalating tensions in the Middle East drove oil prices sharply higher, fueling concerns over inflation and the interest rate outlook. The move followed President Donald Trump’s unveiling of plans to reinstate a blockade on Iranian vessels transiting the Strait of Hormuz and seek reimbursement from countries benefiting from US efforts to secure the vital shipping lane. Investors also awaited key US inflation data and Federal Reserve Chair Kevin Warsh’s testimony before the US Congress later today, with markets closely watching his remarks for further policy signals. Markets now price in roughly a 51% chance of a Fed rate hike in September, compared with a 23% probability that the central bank will leave rates unchanged.

The yield on the US 10-year Treasury note rose to 4.59% on Monday, reaching 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. Tehran declared the strait closed "until further notice," while US President Trump said the US would reinstate its blockade of Iranian vessels and impose a 20% fee on all cargo transiting it. 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 Fed rate hike this year, with the probability of a September increase hovering around 71%.