US 10-Year Yield Edges Lower

The yield on the US 10-year Treasury note eased to around 4.68% on Wednesday, extending its decline into a second session as investors positioned ahead of key inflation data that could provide fresh guidance on the Federal Reserve’s policy outlook. The consumer price index is due later today, with producer inflation figures scheduled for Thursday. Markets remain split over the prospect of a 25-basis-point Fed rate hike in September after the central bank left rates unchanged in July, while firmer oil prices continue to bolster expectations for a hawkish stance. On Tuesday, Chicago Fed President Austan Goolsbee said policymakers remain more focused on the risk of persistently elevated inflation than potential weakness in the labor market. Meanwhile, investors continued to monitor prospects for a US-Iran agreement to reopen the Strait of Hormuz after Pakistan’s defense minister said Washington and Tehran are “close to some sort of arrangement.”

The yield on the US 10-year Treasury note fell to 4.68% on Tuesday, after rising above 4.71% the previous day, as oil prices steadied amid signs that diplomatic efforts are underway to reach a deal between the US and Iran and reopen the Strait of Hormuz. Pakistan signaled the possibility of an agreement that could help ease tensions roiling energy markets, although the situation remains highly fragile and uncertain. Meanwhile, the highly anticipated US CPI report is due on Wednesday and should provide further insight into the path of inflation. The report is expected to continue pointing to a slowdown in energy-related price pressures that intensified in the months immediately following the start of the US war with Iran. Markets are pricing in roughly even odds of a Fed rate hike next month, with about a 50% probability of rates being left unchanged.

The yield on the US 10-year Treasury note rose above 4.7% on Tuesday, moving closer to its highest level since January as surging oil prices strengthened expectations that the Federal Reserve could raise interest rates. The move came amid continued uncertainty over efforts by the US and Iran to reach an agreement to end the war and reopen the Strait of Hormuz. After Tehran called for financial compensation over damages suffered during the conflict, Trump said he had directed US representatives to insist on compensation from Iran in any future negotiations, further complicating diplomatic efforts. Meanwhile, investors awaited key US inflation data due this week for additional guidance on the monetary policy outlook. Markets are now pricing in around a 51% probability of a 25 basis point Fed rate hike in September, up from 44% a day earlier. Cleveland Fed President Beth Hammack said multiple rate increases could be necessary to bring inflation back to the central bank’s 2% target.