US 10-Year Yield Falls as Oil Prices Drop

The yield on the US 10-year Treasury note fell to around 4.64% on Monday, pulling back from six-month highs as oil prices dropped following a pause in hostilities between the US and Iran over the weekend, easing concerns over supply disruptions and inflation. The US suspended its nearly two-week campaign of strikes against Iran beginning late Friday without an official announcement, while Tehran said it had ended its retaliatory military operations and held discussions with Oman regarding the Strait of Hormuz. Meanwhile, investors are awaiting the Federal Reserve's policy meeting this week, where officials are widely expected to leave interest rates unchanged. However, some market participants believe the central bank could act as early as this week's meeting in response to renewed inflationary pressures. Investors are also looking ahead to advance Q2 GDP data, PCE inflation figures, and earnings from major US companies for further insight into the strength of the economy.

The yield on the US 10-year Treasury note edged lower to 4.67% on Friday, pausing after a four-session rally that had lifted the benchmark yield to its highest level since January 2025. Oil prices eased during the session, helping push yields slightly lower, although tensions in the Middle East remained elevated, with US President Trump saying he would soon decide whether to launch a "massive attack" on Iran. On the data front, flash S&P Global PMIs showed that US services sector activity strengthened in July, while manufacturing growth slowed and price pressures intensified. Investors are now turning their attention to next week's Federal Reserve policy decision. The central bank is widely expected to leave the federal funds rate unchanged, although markets are pricing in roughly a 35% probability of a rate hike. The probability of a September hike currently stands at nearly 80%.

The yield on the US 10-year Treasury note rose to around 4.70% on Friday, marking its fifth consecutive gain and remaining at its highest level since January 2025 as President Donald Trump's latest tariff package heightened concerns over worsening trade frictions between the US and its trading partners. Imports from countries including Mexico, Canada, the UK, and India will face 10% tariffs tied to alleged forced-labor concerns, while goods from the EU and Taiwan will generally be subject to a 10% duty. Moreover, products from Japan, South Korea, and Switzerland will face tariffs of up to 12.5%, with additional charges applying to selected goods. On the monetary policy front, surging energy prices stemming from escalating Middle East tensions, alongside resilient US labor market conditions reinforced expectations for tighter policy, with swap markets pricing in a 34% chance of a Fed rate hike next week, at least one increase by September, and another possible move before year-end.