FX.co ★ Treasury Yields Pare Some of the Rise

The yield on the US 10-year Treasury note edged up 1 basis point to 4.09% on Wednesday, extending its advance for a third straight session. It later gave back part of its earlier gains after a New York Times report suggested that Iranian operatives had signaled a willingness to discuss terms for ending the conflict, and as oil and gas prices began to ease.

Pressure on the bond market has intensified amid growing concern that the war with Iran and the associated surge in energy prices could trigger an inflationary spiral. Investors worry that stubbornly high inflation will constrain the Federal Reserve’s ability to lower borrowing costs. Rate-cut expectations have been pared back: traders now see the next reduction coming in September instead of July, though they still anticipate two 25-basis-point cuts by year-end.

Even as the US-Israeli conflict with Iran entered its fifth day, the typical safe-haven bid for Treasuries remained muted, with inflation fears overshadowing the usual demand for defensive assets.