Treasuries-US yields rise following more strikes in Iran, fanning inflation concerns

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities was last at 2.371% after closing at 2.33% on Monday. The 10-year TIPS breakeven rate was last at 2.35%, indicating the market sees inflation averaging about 2.3% a year for the next decade. Yields slipped from their highs after the Institute for Supply Management said its manufacturing PMI fell to a still-elevated 54.6 last month from 55.6 in July, which was the highest reading since May 2022. Economists polled by Reuters had projected it would dip to 55.2. The rising costs may spur the U.S. Federal Reserve to raise short-term rates to bring down inflation. Fed Governor Michael Barr said on Tuesday that if inflation does not cool quickly, it will be time for the U.S. central bank to increase rates. Expectations for a hike of at least 25 basis points from the central bank at its September 15 to 16 meeting stand at 66.2%, according to CME Group's FedWatch Tool, up from 39.6% a week ago. Separately, the Labor Department's Job Openings and Labor Turnover Survey, or JOLTS report, showed that job openings, a measure of labor demand, had risen by 89,000 to 7.271 million by the last day of July, below the estimate of 7.300 million in a Reuters poll, while data for June was revised lower to show 7.182 million unfilled positions instead of the previously reported 7.359 million. The JOLTS report marks the first in a string of readings on the labor market this week, culminating with the release on Friday of the government's monthly payrolls report, which could shape expectations for the Federal Reserve's monetary policy. The yield on the benchmark U.S. 10-year Treasury note rose 3.4 basis points to 4.792% after at one point touching 4.798%, its highest level since January 14, 2025. The steady increase in yields will make borrowing more expensive for individuals and companies and could drag on economic growth. "It's not necessarily the level of yields that's concerning to markets on a day like this, it's the trend and the concern that if the trend persists, then it will start to bite more into how companies, how investors value companies, how investors discount those cash flows to put a price, a current price on whether that's shares, or real estate, or pick your asset," said Bill Merz, head of capital markets research and portfolio construction at U.S. Bank Wealth Management Group in Minneapolis. The yield on the 30-year bond added 1.4 basis points to 5.263% after rising to 5.288%, its highest since August 19. The gap between yields on two- and 10-year Treasury notes, an indicator of economic expectations, was at a positive 40.1 basis points. The 2-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, climbed 3.9 basis points to 4.389% after hitting 4.392%, its highest level since January 14, 2025. U.S. Treasury yields advanced on Tuesday following another round of strikes in the Iran war, joining other global bond markets in a broad-based selloff on worries about rising inflation. Oil prices fed investors' fears about inflation, as crude rose more than 4% after a series of strikes between the United States and Iran. This past weekend's first exchange of strikes in a month was followed by more U.S. air strikes on Iranian targets on Tuesday. Yields in developed markets around the globe surged over inflation worries, the outlook for monetary tightening and worsening fiscal conditions. The 10-year yield is on track for a fifth straight session of gains, its longest run since March.

Treasuries-US yields rise following more strikes in Iran, fanning inflation concerns

Inflation breakevens move higher

Economic data and Fed expectations

Benchmark Treasury yields hit January highs

Yields climb on Iran strikes and inflation worries

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