US 10Y Yield Falls on Hormuz Deal Prospects

The yield on the 10-year US Treasury note declined to around 4.6% on Wednesday, extending its losses for a third consecutive session as reports of an imminent interim agreement between the US and Iran to reopen the Strait of Hormuz drove oil prices sharply lower, easing concerns over inflation and the need for aggressive interest rate hikes. On Tuesday, Qatar said an interim proposal had been prepared, while both Washington and Tehran signaled progress in negotiations to reopen Hormuz. US Treasury Secretary Scott Bessent also said a deal could be reached as early as Tuesday or Wednesday. Markets trimmed expectations for a September Federal Reserve rate hike to around 57%, down from 67% a day earlier. Investors are now awaiting a series of US labor market reports for further clues on the Fed’s policy outlook, with ADP’s July private payrolls data due later today.

The yield on the 10-year US Treasury note fell to 4.65% on Tuesday from the 18-month high of 4.75% in the previous session as lower energy prices softened risks of higher inflation and a hawkish reaction by the Federal Reserve. Qatari authorities stated that the US and Iran were close to signing a short-term agreement that would pause the conflict, followed by US Treasury Secretary Bessent noting that a deal could be announced imminently. The developments drove fuel and natural gas prices to extend their declines, limiting risks that energy-driven inflation would continue to lift underlying consumer prices as observed in data from the second quarter. Rate traders trimmed positions reflecting a hike in the Federal Reserve's next meeting, although the move remained in slight consensus. Still, yields remained above levels prior to the Fed's rate hold last week, when Chair Warsh's reluctance to confirm a rate hike as his preferred tool against higher prices raised inflationary concerns.

The yield on the US 10-year Treasury note held around 4.69% on Tuesday as investors continued to evaluate the outlook for Federal Reserve monetary policy amid heightened uncertainty in the Middle East. Markets are currently pricing in about a 65% chance of a 25 basis point Fed rate hike in September after the central bank left interest rates unchanged in July. However, three policymakers dissented from the decision, while Chair Kevin Warsh offered little forward guidance on the path of interest rates. Meanwhile, Bank of New York Fed President John Williams said monetary policy remains well positioned, adding that inflation is expected to ease during the second half of the year. Investors are now awaiting the latest JOLTS job openings report and international trade data due later today for further clues on the strength of the US economy.