Treasuries-Yields ease, but Iran conflict keeps rate-hike bets alive

Benchmark 10-year U.S. Treasury yields edged lower from 18-month highs on Friday as oil prices eased, though investors remained cautious ahead of the Federal Reserve's highly anticipated policy meeting next week, which many believe could bring a hawkish surprise. Oil prices have climbed as the U.S.-Israeli war with Iran escalates, reviving concerns over a more prolonged bout of inflation that could push the central bank toward higher rates. "The reheating of the situation in the Middle East really got the market back on track to recognize there is a structural level of inflation that's too high, that's going to require higher rates," said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income. Consumer price inflation data for June, released last week, showed prices moderating more than economists had expected, boosting hopes that the worst of the price pressures was over. Still, one data release is unlikely to derail hikes as long as inflation remains well above the Fed's target and the economy stays strong, Tipp said. Adding to price pressure worries, the U.S. imposed new tariffs of 10% and 12.5% on goods from 60 trading partners, including the EU and China, just as a temporary 10% global tariff expired. Futures pricing shows expectations that the benchmark rate will rise to around 4.21% by April, from its current band of 3.50% to 3.75%. Fed Chairman Kevin Warsh's preference for less forward guidance is adding to the uncertainty surrounding the Fed's response to this new bout of higher energy costs. The Fed held interest rates steady last month, but policymakers expect a hike in borrowing costs later this year amid growing concerns about inflation lodged above the U.S. central bank's 2% target. Fed funds futures traders are now pricing in a 36% chance of a hike at the conclusion of the Fed's two-day meeting on Wednesday, up sharply from 13% a week ago, according to the CME Group's FedWatch Tool. The 2-year note US2YT=RR yield, which typically moves in step with Fed rate expectations, fell 1.87 basis points to 4.341%. It is heading for its largest one-week basis point increase since May 11 at 17 basis points. The yield on benchmark U.S. 10-year notes US10YT=RR fell 1.78 basis points to 4.685%. It is also on track for its largest weekly increase since May 11 with a 14-basis-point gain. The yield curve between 2- and 10-year yields US2US1-=TWEB was at 34.2 basis points. Traders had pared back bets on rate increases after the United States and Iran reached a deal late last month aimed at ending the conflict. Those bets were reignited, however, as the war reaccelerated. U.S. missiles struck targets across Iran on Friday, reaching as far as its Caspian coast, after President Donald Trump vowed "major military punishment" against Tehran and its Houthi allies in Yemen for extending the Middle East war to a second major shipping chokepoint at the mouth of the Red Sea.

Treasuries-Yields ease, but Iran conflict keeps rate-hike bets alive

Yields ease as oil prices retreat

Inflation data, tariffs and policy outlook

Rate-hike bets rise ahead of the Fed meeting

Related News

Provident Financial names CEO Donavon Ternes to board of directors

Nasdaq trade halt continues <PC.O> reason not available at 09:58 AM

Yen set for biggest weekly drop in over two months

NASDAQ Trade Halt <AKAN.O> Volatility Trading Pause at 10:12 AM

Nasdaq trade halt continues <PC.O> reason not available at 10:11 AM