US 10-Year Yield Holds Decline

The yield on the 10-year US Treasury note hovered around 4.6% on Thursday, down about 10 basis points so far this week as the partial reopening of the Strait of Hormuz continued to pressure oil prices, easing inflation concerns and reducing expectations for more aggressive Federal Reserve tightening. Iran and Oman reached an agreement to establish a shipping corridor through the strait, boosting hopes for stronger energy flows from the Middle East. In response, markets pared expectations for Fed interest rate hikes this year, now pricing in just one increase by year-end, down from two as recently as last week. Meanwhile, Fed Governor Lisa Cook reiterated that she is prepared to raise rates if inflation does not continue to ease. Separately, San Francisco Fed President Mary Daly said she supported the central bank’s decision to leave rates unchanged last week, while cautioning that persistently elevated inflation may require a more forceful policy response.

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.