U.S. benchmark Treasury yields moved higher on Friday as market participants reacted to renewed strength in crude prices alongside a White House announcement extending a deadline tied to possible U.S. strikes on Iranian energy assets.
By 07:04 ET (11:04 GMT), the yield on U.S. 10-year Treasury notes had climbed to 4.46%, an increase of roughly 4 basis points. On Thursday, the 10-year had added 9 basis points. Yields move inversely to bond prices, so the readings reflect a decline in demand for those notes.
Traders have been sensitive to developments in the Middle East after the effective closure of the Strait of Hormuz - a critical shipping lane off Iran's southern coast through which about one-fifth of the world’s oil transits. The disruption has left crude prices considerably higher than the levels seen before the onset of the conflict in late January, stoking concerns that energy costs will feed into broader inflationary pressures worldwide.
Those inflation concerns have changed the market's expectations for U.S. monetary policy. Investors have pared back almost all odds of Federal Reserve rate reductions this year and have even begun to price in the possibility of higher borrowing costs in coming months. Fed policymakers left rates unchanged at a meeting last week, while flagging the risk that the energy shock could accelerate inflation.
On Thursday, the Organisation for Economic Co-operation and Development (OECD) warned of the consequences higher price gains could have for global growth, singling out the potential for faster inflation in the U.S. in particular.
Oil price dynamics
Brent crude futures, the global benchmark, continued to trend upward on Friday, recovering much of an earlier pullback that followed tentative hopes for progress toward ending the nearly month-long Middle East conflict. The higher oil trajectory has been a primary driver of renewed market jitters around inflation and interest-rate trajectories.
Late on Thursday, President Donald Trump said he would extend a White House deadline related to Iran and the Strait of Hormuz until April 6. The deadline concerned potential U.S. attacks on Iranian energy infrastructure if the waterway remained blocked.
In a post on Truth Social, President Trump added that the extension was granted at the request of the Iranian government and that Tehran was participating in "ongoing" talks with the United States that were "going very well." He described media reports that contradicted his account as "erroneous."
Earlier in the week, the president had issued an ultimatum to Iran, warning of strikes on power plants if the Strait of Hormuz was not reopened. He later postponed any immediate action until Friday after what he described as "very strong" discussions with Iran. Tehran has publicly denied that any negotiations with Washington are taking place.
Diplomatic and market backdrop
Diplomats from the Group of 7 (G7) nations were scheduled to meet in France on Friday. White House appeals for international assistance to help reopen the Strait of Hormuz were expected to feature prominently in those discussions, though such requests have largely not been accepted to date.
Markets are also focused on U.S. data that could illuminate the effects of the conflict on consumer sentiment. Investors will look to the final University of Michigan consumer sentiment index for March for an indication of how American households are adjusting expectations amid the fighting in the Middle East.
For now, the combination of a tight physical oil market, geopolitical risk tied to Iran and the Strait of Hormuz, and central-bank caution appears to be sustaining upward pressure on U.S. Treasury yields.