Yields Ease as Oil Retreats from Four-Year High

Treasury Yields Retreat as Oil Prices Fall from Four-Year High

U.S. Treasury yields eased on Thursday as oil prices pulled back from a four-year high and traders continued to digest a Federal Reserve meeting that struck a more hawkish tone than many had anticipated. Global oil prices fell after hitting a four-year high above $126 a barrel earlier on Thursday, amid concerns the U.S.-Israeli war with Iran could lead to a protracted Middle East supply disruption and hurt global economic growth.

The move higher was fueled in part by an Axios report that U.S. Central Command was set to brief President Trump on plans for possible further military action against Iran. Iran said on Thursday it would respond with "long and painful strikes" on U.S. positions if Washington renewed attacks.

Comparison of Treasury Yields

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Two- and 10-year Treasury yields have reached their highest levels in more than a month while 30-year yields topped 5% - the highest level since July - as investors grow increasingly concerned that elevated oil prices will stoke inflation and keep the Fed on hold for longer.

Michael Lorizio, head of U.S. rates and mortgage trading at Manulife Investment Management, noted that the greatest contribution to the move higher in yields is the uncertainty as to what impact the oil price increase will have on the U.S. economy.

However, Lorizio still sees value in Treasuries under two scenarios: either there's a de-escalation that leads towards a reduction in the price of oil and some stabilization, or if the situation extends longer than expectations and leads to demand destruction.

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

U.S. Economic Data

Mixed US economic data was seen supporting the Fed's cautious approach. First-quarter gross domestic product grew at a 2% seasonally adjusted annualized pace, up from 0.5% in the fourth quarter of 2025, though it fell short of economist estimates for a 2.3% gain. The Personal Consumption Expenditures Price Index - the Fed's preferred measure of inflation - rose 0.7% in March, the largest gain since June 2022, putting the annual inflation rate at 3.5%, in line with forecasts.

The Fed's more hawkish signal was reinforced by a divide among its members, with three members dissenting over language suggesting the central bank could eventually resume rate cuts. This divide was seen as a more hawkish signal, with traders now pricing in a chance of a rate hike in the first half of 2027.

Fed Chair Jerome Powell said at a post-meeting press conference that the U.S. central bank could drop its easing bias as soon as its next meeting. Powell also said he intends to remain as a Fed governor for now to defend the central bank's independence amid pressure from the Trump administration.