FX.co ★ US 10-Year Yield Drops Further

The yield on the 10-year US Treasury note declined to 4.29% on Wednesday, its third straight daily drop, as investors grew increasingly worried about the economic fallout from the war in the Middle East. Now in its fifth week, the conflict has unsettled global markets and stoked fears of a stagflationary backdrop, with rising inflation risks coinciding with slowing growth.

Even so, Federal Reserve Chair Jerome Powell noted earlier this week that longer-term inflation expectations remain well anchored, tempering concerns that higher energy prices will immediately feed through to broader inflation. This, in turn, reduces pressure on the Fed to respond quickly with monetary policy adjustments, especially given its limited ability to address supply-driven shocks.

In March, the yield on the 10-year note had risen by roughly 39 basis points, driven by the run-up in oil prices and the renewed focus on inflation risks.