Treasuries Decline on Strong Jobs Data and Escalating Tensions with Iran

Treasuries Fall as Investors Bet on Higher Interest Rates

Treasuries declined on Monday as investors increased their bets that the Federal Reserve will need to raise interest rates. The move was driven by a strong US jobs report on Friday, which topped all forecasts and reinforced the view that the Fed, under Chairman Kevin Warsh, will need to raise borrowing costs to contain inflation that is running above target.

Yields rose about two to five basis points across the curve in Asian trading, with the biggest moves in shorter-dated bonds such as five- and two-year notes. These bonds are more sensitive to changes in Fed policy expectations. Investors are still assessing the impact of the strong US jobs report, which reaffirmed the view that the Fed will need to raise interest rates to contain inflation.

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The escalation of tensions in the Middle East, with fresh Israeli strikes on Iran, has pushed up oil prices and potentially added to inflationary pressures in the world's largest economy. Traders have returned to pricing in a quarter-point Fed hike by December and around a 16% chance of a second increase.

Goldman Sachs Group Inc. economists have revised their forecast, no longer expecting the Fed to cut interest rates this year due to a stronger-than-expected labor market. JPMorgan Chase & Co. sees 10-year yields ending the year higher at 4.70%. Traders are also wagering that inflation figures this week will show the biggest surge in consumer prices in several years, adding to the case for higher rates.

President Donald Trump has pushed back against market expectations for higher interest rates, saying there is "no reason" for the Fed to hike. However, Warsh faces his first Federal Open Market Committee meeting on June 16-17, and there are expectations that officials will drop the so-called easing bias from their policy statement.