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Treasury yields rose slightly on Monday as the price of global crude oil benchmarks climbed about 7% following the breakdown of talks between Iran and the United States, once again clouding the inflation outlook.
The yield on the US Treasury at 10 years rating – the benchmark for government borrowing – was almost 2 basis points higher, at 4.333%.
THE 2-year Treasury bill the yield, more sensitive to movements in the Federal Reserve’s short-term interest rates, rose 1.3 basis points to 3.814%. The most dated 30-year Treasury bond the yield also increased by 1 basis point, to 4.923%.
One basis point is 0.01%, and yields and prices move in opposite directions.
Investors have been reacting to soaring crude oil prices – which will be reflected in higher costs of gasoline for drivers and diesel fuel for American truckers – and tthe start of the American blockade of Iranian ports after talks between Washington and Tehran this weekend failed to produce an agreement ending the war in the Middle East.
The fixed income market has also continued to price in the implications of Friday Inflation Report for Marchwhich showed that underlying prices rose less than expected, despite energy prices soaring since the start of the Iran war.
In broad terms, the latest U.S. consumer price index rose to its highest level in two years, stoking fears that the energy price shock could spread throughout the economy and increase the costs of goods and services.
“Markets are struggling to understand this,” Rob Haworth, senior director of investment strategy at US Bank Asset Management, said of the impact of the Iran war. “A 10-year Treasury rate between 4% and 4.35% is probably acceptable. If we start spending a lot of time above 4.5%, that tells us there are a lot of inflation concerns in the market.”
The real estate market showed signs of weakness on Monday. Existing home sales in March were worse than expected, falling to their lowest level since last June.
