US Treasury Yields Retreat Amid Optimism Over Potential Hormuz Deal
U.S. Treasury Yields Fall Amid Optimism Over Iran Deal
WASHINGTON, May 26 - Yields on U.S. government bonds held at lower levels on Tuesday, as investors relaxed about the inflation outlook due to hopes for a breakthrough deal to reopen the Strait of Hormuz. The Federal Reserve is set to release major U.S. economic data, including GDP, inflation, durable goods, and trade data, later this week.
A $69 billion auction of two-year notes showed solid investor appetite, with demand for the debt at 2.64 times the notes on sale. U.S. President Donald Trump signaled negotiations to end the conflict with Iran were proceeding "nicely" on Monday. However, Tehran later accused the U.S. of a "gross violation" of the current ceasefire after Washington conducted what it called defensive strikes in southern Iran.
The S&P CoreLogic Case-Shiller indices showed gains that fell short of expectations, while a measure of consumer confidence came in higher than expected but edged lower. The data left markets largely unmoved.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
| Data Release | Actual | Expected |
|---|---|---|
| S&P CoreLogic Case-Shiller indices | 0.5% | 0.7% |
| Consumer Confidence | 105.5 | 104.5 |
The yield on the benchmark U.S. 10-year Treasury note fell 8.1 basis points to 4.491%. The yield on the 30-year bond fell 5.9 basis points to 5.023%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 8 basis points to 4.047%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.536% after closing at 2.538% on May 22. The 10-year TIPS breakeven rate was last at 2.412%, indicating the market sees inflation averaging about 2.4% a year for the next decade.
U.S. Secretary of State Marco Rubio said on Tuesday that reaching an agreement on the Iran deal could take "a couple of days." Markets seem to think that a deal is close at hand, creating a stronger backdrop for investors. However, it may be premature, as the negotiations have seen a lot of twists and turns.
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Investor Takeaway
Investors may see a potential deal to reopen the Strait of Hormuz as a positive development for the economy.
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