FX.co ★ US 10-Year Yield Pares Retreat

The yield on the 10-year US Treasury erased an earlier 7-basis-point decline to trade roughly flat on Wednesday, after Iran accused the US of violating their ceasefire agreement, threatening the recent pullback in oil prices that had eased inflation concerns. Even so, Washington ultimately refrained from carrying out strikes on Iran as previously threatened, and yields continued to hold below the eight-month high of 4.45% reached two weeks earlier.

Under the ceasefire, officials had pledged to increase tanker traffic through the Strait of Hormuz to partially restore higher levels of energy exports. However, reports that tanker operators were still facing threats from Tehran had already tempered hopes of a return to more normal oil flows. The energy shock since the start of the conflict has lifted global energy costs and led several FOMC members, according to the latest meeting minutes, to voice heightened concern about inflationary pressures.

The first clear read on the impact of higher energy prices will come on Friday with the release of US CPI data, which is expected to show inflation accelerating to a two-year high.