Treasuries Experience Buying Interest Following Recent Selloff as Oil Price Growth Loses Momentum

Treasuries Rise as Oil Prices Stall and Bond Investors Seek 30-Year Yields

Treasuries saw an increase in value on Thursday, as the recent surge in oil prices stalled and bond investors were drawn to 30-year yields that surpassed 5% for the first time this year. The benchmark yields, which had climbed to their highest levels in at least several weeks, dropped by two to six basis points at midday in New York.

The 30-year yield, which had previously reached 5%, was back down to 4.98% by Thursday. This decrease was largely driven by the Federal Reserve's decision to leave interest rates unchanged, as expected. Hawkish votes against the policy statement led traders to price in lower chances of a rate cut at any point before 2028 and the possibility of a rate increase during the first half of 2027.

Brent Crude Decline Contributes to Treasury Rally

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Brent crude oil prices declined to around $114 a barrel from highs above $126, which contributed to the treasury rally. The decline in oil prices, coupled with the surge in the value of the yen from its cheapest level versus the dollar since mid-2024, reportedly assisted by Japanese official intervention, weakened the yen and other currencies of oil-importing countries.

| Comparison of Interest Rate Expectations | | --- | --- | | Before the War | After the War | | More than two reductions by the Fed this year | Roughly 5% chance of a quarter-point cut in 2026 | | Some expecting Kevin Warsh to support policy easing | As much as a 50% chance of a quarter-point increase by mid-2027 |

The Treasury rally showed that the market continues to take cues primarily from energy prices, which have put upward pressure on broad inflation gauges, potentially blocking the Fed and other central banks from cutting interest rates. Additionally, the potential for calendar-driven trading, such as month-end rebalancing of bond indexes and the relative performance of US stock and bond markets in April, drove buying of bonds.

Economic Data and Interest Rate Expectations

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Thursday's economic data included March personal income and spending, which embeds the inflation gauge the Fed aims to keep near 2% over the longer run. The price index for personal consumption expenditures, or PCE, was in line with economists' consensus estimate, rising 3.5% year-on-year.

Separately, the first estimate of US first-quarter GDP growth was 2.0%, lower than the 2.3% median forecast, while weekly initial jobless claims plunged to the lowest level in decades, a sign of labor-market strength. Treasuries held their advance after the figures, which had scant impact on expectations for Fed policy.

"It remains difficult to make a convincing case for rate cuts," said Christophe Boucher, chief investment officer at ABN AMRO Investment Solutions, adding that the US economy remains resilient. "The Fed is likely to remain in a status quo for a large part of the year."

For bond investors, the 5% yield level on the 30-year carries special importance, with some viewing it as a "line in the sand" for the market. A more persistent break above 5% would herald a trading range not seen in almost two decades.