Treasury yields climbed on Friday as investors grew concerned that the Federal Reserve may not cut interest rates this year, amid fears that the escalating conflict in the Middle East could push inflation higher. The 10-year Treasury yield, a key indicator for U.S. government borrowing, rose nearly 10 basis points to 4.38%, while the 2-year note yield, more sensitive to short-term rate decisions, increased by almost 6 basis points to 3.89%. Even the 30-year bond yield, which typically reflects long-term expectations, surged nearly 10 basis points to 4.95%. A basis point equals 0.01%, and bond yields and prices move inversely to one another. The sell-off in Treasury bonds followed overnight strikes between Iran and Israel, with Iran launching new attacks on energy sites in Kuwait and the Persian Gulf. The lack of a resolution to the conflict has led investors to anticipate a more aggressive stance from the Fed, as rising global oil prices complicate the economic outlook. Ross Mayfield, an investment strategist at Baird, told CNBC that the domestic economic environment has become less favorable for rate cuts, with markets effectively removing all expectations of Fed easing this year. Instead, traders are now pricing in a 20% chance of a rate hike in June, according to the CME FedWatch tool, which calculates probabilities based on interest rate futures. European central banks also maintained steady rates this week as policymakers grappled with the war’s impact, with markets increasingly anticipating rate increases to curb inflation. Oil prices, however, dipped slightly on Friday, with U.S. West Texas Intermediate crude falling 1.2% to $94.99 per barrel and Brent crude, the global benchmark, declining 1.3% to $107.28. Prices had previously dropped to around $72.50 per barrel before the conflict escalated.#iran #israel #scott_bessent #federal_reserve #baird
