US Treasury Yields Decline Amid Reports of Progress in US-Iran Diplomatic Talks

US Treasury Yields Fall Amid US-Iran Ceasefire Extension

Washington, May 28 - Yields on benchmark U.S. Treasury notes declined on Thursday as the United States and Iran reached an agreement on a memorandum of understanding to extend their ceasefire for another 60 days. This development is a step towards ending their three-month-old war. Earlier in the day, yields had eased off session highs following a batch of mixed U.S. economic data showing weaker growth, faltering capital expenditures, and steady inflation.

The less-than-stellar economic numbers may ease pressure on the US central bank to maintain or raise interest rates. St. Louis Federal Reserve President Alberto Musalem told an economic conference in Iceland on Thursday that the U.S. central bank may need to increase its policy rate if inflation does not resume easing within the next six months.

A $44 billion auction of 7-year US Treasury notes in the afternoon showed demand a touch above average at 2.52 times the notes on sale. This follows a series of events that highlighted the fraught nature of negotiations to turn April's tenuous ceasefire into an agreement to end the three-month-old war that has choked global fuel supplies and clouded the outlook for U.S. monetary policy.

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The renewed violence underscored the challenges in negotiations, with Iran targeting a U.S. air base in Kuwait following a U.S. strike on what American officials called an Iranian drone operation near the Strait of Hormuz. Separately, the U.S. reported on Thursday that the pace of new home sales had slowed in April. The Commerce Department is due on Friday to release April data on the U.S. trade balance.

The yield on the benchmark U.S. 10-year Treasury note was last down 2.4 basis points to 4.457%. The yield on the 30-year bond had fallen 2.4 basis points to 4.987%. The closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes was at a positive 43.0 basis points.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.554% after closing at 2.551% on May 27. The 10-year TIPS breakeven rate was last at 2.406%, indicating the market sees inflation averaging about 2.4% a year for the next decade.

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