US Yields Rise Amid Escalation of Tensions Over Iranian Conflict

US Treasury Yields Surge Amid Iran Conflict and Inflation Fears

The US Treasury market experienced a significant shift on Monday, with yields rising in response to escalating tensions between Iran and the United Arab Emirates. The benchmark 10-year yield jumped to its largest daily increase in nearly six weeks, as investors grew increasingly concerned about the impact of the conflict on oil prices and inflation.

The Iran attacks on the UAE and in the Strait of Hormuz led to a surge in crude prices, with US crude rising 4.5% to $106.53 a barrel and Brent increasing to $114.54 per barrel, a 5.88% gain on the day. This development, coupled with President Donald Trump's attempt to use the US Navy to free up shipping, marked the war's biggest escalation since a ceasefire was declared four weeks ago.

The yield on the 10-year Treasury note rose 7 basis points to 4.448%, putting it on track for its largest daily increase since March 26. Since the start of the US-Israeli war with Iran at the end of February, yields have steadily climbed as concerns about higher prices have dented market expectations for rate cuts from the Federal Reserve this year.

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The New York Federal Reserve President, John Williams, stated on Monday that the Fed's monetary policy is "well-positioned" to deal with the high level of economic uncertainty facing the economy as a result of the war in the Middle East. Barclays, a prominent brokerage, has joined a growing list of firms expecting no rate cuts from the Fed this year, citing prolonged high energy prices linked to the Iran war that could keep inflation elevated.

The two-year US Treasury yield surged 8.1 basis points to 3.969%, while the breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) rose to 2.805%, its highest since August 2022. The 10-year TIPS breakeven rate was last at 2.519%, indicating the market sees inflation averaging about 2.5% a year for the next decade.

Data released on Monday showed new orders for US factory goods rose 1.5% in March, surpassing forecasts for a 0.5% increase. The Commerce Department reported the largest gain since November, with economists polled by Reuters forecasting a 62,000 rise in nonfarm payrolls this week, culminating in the government's jobs report on Friday.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline