FX.co ★ US 10Y Yield Holds at 5-Week High

The yield on the US 10-year Treasury note hovered around 4.26% on Friday, near a five-week high, as intensifying conflict in the Middle East and rising oil prices stoked fears of renewed inflation. Those concerns strengthened expectations that the Federal Reserve will keep interest rates elevated for an extended period.

The Fed is widely expected to leave the federal funds rate unchanged at its meeting next week, but attention will center on the updated dot plot and policymakers’ projections for the rest of the year. Higher perceived inflation risks have also prompted markets to delay their anticipated timing for the Fed’s first rate cut, shifting expectations from July to September.

Investors are now awaiting January’s PCE price index—the Fed’s preferred inflation gauge—for further insight into inflation dynamics, though that release will not reflect the impact of the Iran war. Oil prices have surged after Iran’s new supreme leader, Mojtaba Khamenei, vowed to keep the Strait of Hormuz effectively closed while Tehran stepped up attacks on regional oil and transport infrastructure.