Treasury yields fall as U.S.-Iran pause pushes oil lower
U.S. yields moved lower after Washington and Tehran paused hostilities, sending oil down ahead of the Fed’s Wednesday rate decision.
By Sarah Jenkins · Chief Macro Economics Correspondent
· 2 min read
Treasury yields fall Monday as the U.S. and Iran paused hostilities in the Middle East, a shift that pushed oil prices lower and eased some pressure on inflation-sensitive assets, CNBC reported. In early trading, the 10-year Treasury yield, a widely watched reference point for mortgages, auto loans and credit-card borrowing, was down more than 3 basis points at 4.6406%.
The move extended across the Treasury curve. CNBC market data showed the 2-year Treasury yield fell 2 basis points to 4.3030%. The 2-year note is closely watched because it tends to reflect expectations for near-term Federal Reserve policy.
Longer-dated debt also rallied. The 30-year Treasury yield, which CNBC noted often responds to geopolitical developments, declined more than 3 basis points to 5.1260%.
A basis point is one one-hundredth of a percentage point. Treasury prices and yields move in opposite directions, so a decline in yields means investors are paying higher prices for those bonds.
Why did Treasury yields fall Monday?
Yields moved lower after the U.S. and Iran held fire for a third consecutive night, reducing immediate concern about a wider Middle East conflict, according to CNBC. Lower perceived geopolitical risk helped reverse the recent rise in energy prices, which can feed into inflation expectations and influence bond markets.
Oil prices dropped sharply as traders reassessed supply risks. U.S. West Texas Intermediate futures fell 5.34% to $84.55, while Brent crude, the global benchmark, was down 5.77% at $91.20, CNBC reported. Brent had approached $100 a barrel last week.
Energy markets matter for Treasurys because oil shocks can alter the inflation outlook. If higher crude prices threaten to lift headline inflation, bond investors may demand higher yields. A retreat in oil prices can have the opposite effect, though yields also reflect growth expectations, safe-haven demand and central bank policy.
The market moves came before the Federal Reserve’s next interest-rate decision, due Wednesday. CNBC reported that consensus forecasts expect the Federal Open Market Committee to keep rates unchanged at 3.75%.
Investors are also looking to U.S. economic releases scheduled for the week for evidence on growth and inflation. Those reports include June’s core personal consumption expenditures price index, the latest quarterly gross domestic product reading, and new orders for U.S.-made durable goods.
The core PCE price index is the Fed’s preferred inflation gauge because it strips out volatile food and energy costs. Durable goods orders measure demand for longer-lasting manufactured products and can offer a read on business investment and the industrial economy.
This story draws on original reporting from CNBC.
