Treasuries-Iran war, Fed uncertainty fuel big monthly gains for yields

The rise in longer-dated yields accelerated this week after the Fed's policy meeting left rates unchanged, though three of the 12 policymakers dissented in favor of a rate hike. Comments from Chairman Kevin Warsh gave no guidance about the path of central bank policy aside from another pledge to bring down inflation, adding to uncertainty around the Fed outlook. "I don't really think Warsh wants to raise rates, just generally, so I think that's going to be a constant fight at the Fed, getting everybody on the same page," di Galoma said. The three Federal Reserve officials who dissented called for immediate action on Friday to bring inflation back down to the U.S. central bank's 2% target. In addition, Richmond Fed President Tom Barkin told the Wall Street Journal on Friday that it is "a close call" on whether the central bank's interest-rate setting is high enough to bring inflation down. Rate expectations for the Fed have whipsawed in recent weeks, in part due to the volatility in oil prices, which has caused inflation concerns to wax and wane. Markets are now pricing in a 65% chance for a rate hike of at least 25 basis points from the Fed at its September meeting, according to CME FedWatch, down from the 81.9% a week ago but up slightly from the 63.4% on Thursday. NEW YORK, July 31 (Reuters) - U.S. long-term bond yields were set for monthly gains, with the 30-year yield hitting a new 19-year high, as investors grappled with confusion around the Iran war and the policy outlook for the Federal Reserve. U.S. President Donald Trump said a deal he announced to bring peace to Gaza was "a great breakthrough" despite signs from both Hamas and Israel that significant hurdles remain before a deal can be implemented. U.S. crude CLc1 rose 1.39% to $84.73 a barrel and Brent LCOc1 climbed to $90.06 per barrel, up 1.16% on the day, as reports that some tankers were forced to turn around in the Strait of Hormuz prompted traders to reassess shipping flows through the key waterway. The yield on the benchmark U.S. 10-year Treasury note US10YT=RR jumped 8.2 basis points to 4.745% after hitting 4.747%, its highest since January 2025. The one-day gain is its biggest since May 15 and put the yield on track for a second straight weekly gain. For the month, the yield is up about 32 basis points, its biggest monthly rise since March. The Iran war began on February 28. "We're tracking oil, we're tracking the perception that something bigger is going to probably be happening in the next week or so, or maybe even this weekend. ... We're in a very, very dicey situation, with pretty much everything, the war continuing, the Mideast is in total chaos," said Tom di Galoma, managing director at Mischler Financial Group in Stamford, Connecticut. The yield on the 30-year bond US30YT=RR shot up 6.8 basis points to 5.275% and is on track for its fourth weekly rise in the past five. The monthly rise of about 37 basis points would mark its largest since December 2024. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 45 basis points after climbing to 45.6, its highest since May 27. A steepening curve signals market expectations for an economic expansion, but also for an acceleration in inflation. The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 6.4 basis points to 4.293% but is down slightly for the week. The two-year yield is set for its fifth straight monthly gain, which would mark its longest streak of gains since a nine-month run that ended in April 2022. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities US5YTIP=TWEB was last at 2.272% after closing at 2.248% on Thursday. The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.276%, indicating the market sees inflation averaging about 2.3% a year for the next decade. (Reporting by Chuck Mikolajczak; additional Reporting by Siddarth S and Medha Singh in Bengaluru; Editing by Anil D'Silva, Will Dunham and Nick Zieminski)

Treasuries-Iran war, Fed uncertainty fuel big monthly gains for yields

Fed uncertainty and yield curve moves

Long-term yields set for monthly gains

Curve steepening and inflation expectations

10-year and 30-year Treasury yields climb

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