Investing.com – U.S. Treasury yields slipped on Monday, with borrowing costs easing across the curve as a dramatic plunge in tempered immediate inflationary fears following a diplomatic opening in the Middle East.
The rate-sensitive fell to 4.24%, while the benchmark dropped to 4.67%. Long-dated paper also caught a breath, with the pulling back to 5.219% after scaling multi-year highs late last week.
Fixed-income markets drew immediate relief after U.S. President Donald Trump announced that direct negotiations with Iranian officials were scheduled for Monday, adding that he had called off a planned military strike in a bid to negotiate an agreement to reopen the Strait of Hormuz.
The announcement triggered a more than 4% collapse in global crude oil benchmarks, blunting energy-driven inflation fears across bond trading desks.
Monday’s calmer price action followed a grueling July for U.S. fixed-income desks, during which benchmark yields climbed sharply, pushing long-term borrowing costs to 19-year highs.
Sovereign debt markets were battered throughout July by an escalating five-month conflict between the U.S. and Iran, wild swings in energy prices, and murky policy signals from the Federal Reserve that fueled fears of prolonged high interest rates.
Investors spent the final days of July parsing a mixed slate of macroeconomic data alongside the Fed’s latest policy decision. While the Fed kept benchmark rates on hold, three hawkish policymakers dissented in favor of an immediate rate hike.
Fed Chair Kevin Warsh further unsettled fixed-income desks by retreating from traditional forward guidance while emphasizing a commitment to curb persistent inflation, leaving traders without a clear directional roadmap.
At the same time, inflation metrics remained sticky. Although the June Personal Consumption Expenditures (PCE) price index showed headline inflation easing slightly, core measures stayed stubbornly above the Fed’s 2% annual target.
Combined with expanding U.S. fiscal deficits and robust second-quarter GDP growth, markets continued to price in roughly a two-thirds probability of a 25-basis-point Fed rate hike before the end of the year.
With energy prices retreating on Monday, traders are shifting their focus to a packed calendar of U.S. labor market data this week – capped by Friday’s nonfarm payrolls report—to determine whether the recent surge in borrowing costs has reached a peak or if economic resilience will push yields back toward multi-year highs.
Euro yields steady
The rate-sensitive fell to 2.766%, while the benchmark held steady at 3.155%.
Bond prices drew support after U.S. President Donald Trump announced that direct talks with Iranian officials were scheduled for Monday, adding that he had halted a planned military strike in an effort to secure an agreement to reopen the Strait of Hormuz.
The announcement triggered a more than 4% drop in global crude oil prices, cooling energy-driven inflation anxieties across European fixed-income desks.
Monday’s calmer trading followed a July during which benchmark German yields surged roughly 30 basis points to hit 15-year highs near 3.21%.
Fixed-income investors also spent the final days of July digesting a heavy slate of mixed macroeconomic data.
While preliminary figures showed Eurozone second-quarter GDP expanded by a surprisingly resilient 0.4% – doubling market forecasts – July flash Eurozone Consumer Price Index (CPI) data showed headline inflation ticking up to 2.9% from 2.8% in June. Crucially, underlying core inflation accelerated to 2.5%, driven by rising services costs and energy spillovers.
The combination of resilient growth and sticky price pressures throughout July sharply bolstered market expectations for further European Central Bank (ECB) monetary tightening.
SOURCE LINK : Long-term U.S. debt pull back from peaks as Trump-Iran talks offer relief By Investing.com
