US 10-Year Holds Pullback

The yield on the 10-year US Treasury note was at 4.6% on Wednesday, holding the retreat from the 18-month high of 4.75% this week as lower fuel prices limited the risk of a rate hike by the Federal Reserve. Wholesale gasoline and diesel prices declined from recent peaks as US officials continued to signal efforts toward an agreement with Iran that would restore energy exports from the region. The developments softened risks of unrestrained price growth after soaring oil prices raised core inflation rates in the second quarter. The argument for doves in the FOMC was also strengthened by a tame ADP employment report. Still, the yield curve remained sharply higher since the Fed's July decision. Chairman Warsh hesitated to confirm that higher Fed funds rates are desired to fight inflation, driving the long end of the curve to surge while the short end eased. Accordingly, the Treasury allocated the bulk of higher debt needs in bills, opting to keep notes and bond issuance unchanged.

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.