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Geopolitics · Inflation · Interest Rates · Treasury Yields
The yield on the US 10-year Treasury note rose about 2 basis points to 3.97% on Monday, partially reversing last week’s bond rally, as escalating conflict involving Iran reignited inflation concerns and pushed back Federal Reserve interest rate cut expectations.
The move came as escalating conflict involving Iran triggered a sharp surge in energy prices, reigniting concerns about renewed inflationary pressures that could limit the Federal Reserve’s scope to cut interest rates further this year. A series of attacks by the US and Israel on Iran prompted retaliatory strikes by Tehran against targets in the region, heightening geopolitical uncertainty and driving oil and natural gas prices significantly higher.
Those inflation concerns ultimately outweighed an initial decline in yields driven by safe-haven demand, leading Treasury yields to edge higher. Markets now anticipate the first cut in the federal funds rate to come no earlier than July, while the probability of an additional reduction in October stands at only around 35%.
This indicates a more hawkish outlook for monetary policy due to external inflationary pressures.
