Yields Increase Amid Rising Oil Prices and Inflation Concerns

Market Update: Oil Price Surge and Inflation Concerns

U.S. Treasury Yields Rise Amid Iran Conflict

On Monday, U.S. Treasury yields surged higher following military strikes in Iran by the U.S. and Israel, and subsequent counter-strikes by Tehran across the Middle East. The conflict led to a significant jump in oil and gas prices, raising concerns about escalating inflation.

Oil Prices Rise

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U.S. crude prices settled up 6.28% to $71.23 a barrel, while Brent prices settled at $77.74 per barrel, up 6.68% on the day. The two-year U.S. Treasury yield surged 11.1 basis points to 3.49%, its biggest daily gain since June 6.

Inflation Concerns

The Institute for Supply Management (ISM) reported that its manufacturing PMI was little changed at 52.4 last month, compared to 52.6 in January. Economists polled by Reuters had forecast a 51.8 reading. The ISM also showed a measure of prices paid by factories for inputs rose to the highest level in nearly 3-1/2 years, further fanning inflation concerns.

Fed Rate Cut Expectations Dip

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Expectations for a rate cut from the Federal Reserve at its June meeting fell to 45.2% from 57.4% in the prior session, according to CME's FedWatch Tool. The two-year U.S. Treasury yield curve, which typically moves in step with interest rate expectations for the Fed, rose in response to the increased inflation concerns.

Key Metrics

• U.S. crude: $71.23 per barrel, up 6.28%
• Brent: $77.74 per barrel, up 6.68%
• Two-year U.S. Treasury yield: 3.49%, up 11.1 basis points
• ISM manufacturing PMI: 52.4, little changed from January
• Fed rate cut expectations: 45.2%, down from 57.4%