US Treasury bonds firmed on Thursday as investors purchased fixed income after prices fell earlier in the week, though the rally was constrained by renewed concerns about military action between the United States and Iran.
In late morning trading the benchmark 10-year Treasury yield fell 1.6 basis points to 4.551%. The same yield had climbed to a seven-week high on Wednesday. The long bond held near its recent peak as the 30-year Treasury yield was unchanged at 5.065% after rising to a seven-week high the prior day.
Shorter-dated debt also moved lower in yield as the 2-year Treasury note, which is closely watched for clues about market expectations for Federal Reserve rate moves, declined 2 basis points to 4.18%. That 2-year yield had reached its highest level in two weeks on Tuesday.
Market focus shifted back to the conflict involving Iran after Iranian armed forces launched attacks on US military infrastructure in Gulf states on Thursday. Those strikes came after US military operations targeting Iran’s southern coastal and eastern provinces, a sequence of actions that has put pressure on a three-week-old ceasefire agreement.
Energy markets moved in tandem with the risk repricing, as US crude oil futures fell 1.7% to $72.33 per barrel.
At the same time, weekly jobless claims data reinforced expectations that the Federal Reserve will keep its current policy stance in place for several upcoming meetings. The labor-market indicators point to stabilization after a pronounced slowdown in job growth in June, supporting the view that near-term rates will remain unchanged.
Overall, buying interest in Treasuries helped push yields down modestly across the curve, but geopolitical developments and the outlook for central-bank policy limited a more pronounced decline in yields.
Key points
- 10-year yield fell 1.6 basis points to 4.551% in late morning trading; it had hit a seven-week high on Wednesday.
- 30-year yield held at 5.065% after reaching a seven-week peak the previous day.
- 2-year yield dropped 2 basis points to 4.18% after touching a two-week high on Tuesday.
- Sectors affected include government bond markets, energy (oil prices), and financial markets sensitive to interest-rate expectations.
Risks and uncertainties
- Escalation of hostilities between the United States and Iran could constrain bond-market rallies and increase volatility - this risk directly affects the Treasury market and energy sectors.
- Federal Reserve policy path remains a limiting factor for yield moves; expectations for unchanged rates in coming meetings could cap downside in yields - this impacts financial markets and interest-rate sensitive sectors.
- Labor-market developments are mixed: stabilization after a sharp slowdown in June could sustain current policy expectations, leaving markets sensitive to further jobs data - relevant to credit markets and economic activity forecasts.