FX.co ★ Treasury Yields Edge Higher

The yield on the US 10-year Treasury note climbed about 2 basis points to 3.97% on Monday, partially unwinding last week’s bond rally that had briefly pushed yields below 4%. The shift came as escalating conflict involving Iran ignited a sharp spike in energy prices, reviving worries about renewed inflationary pressures that could constrain the Federal Reserve’s room to cut interest rates further this year.

A series of US and Israeli strikes on Iran prompted retaliatory attacks by Tehran on targets across the region, intensifying geopolitical uncertainty and driving oil and natural gas prices markedly higher. Although safe-haven demand initially pushed Treasury yields lower, inflation concerns soon took precedence, leaving yields modestly higher on the day.

Futures markets now imply that the first cut in the federal funds rate is unlikely before July, while the odds of an additional reduction in October stand at only about 35%.