Michael Mackenzie, Ruth Carson and Mary Nicola
3 min read
(Bloomberg) -- US Treasuries fell amid bets that elevated oil prices will spur Federal Reserve policymakers to signal patience toward further interest-rate cuts when they meet this week.
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Treasuries briefly trimmed losses on Monday along with crude following a Wall Street Journal report that Iran signaled it wants an end to its conflict with Israel. But bonds resumed their slide as equities rallied, pushing yields up two to six basis points across maturities in late afternoon New York trading.
Oil prices remain significantly above levels before Israel’s attacks began late last week, stoking worries around the risk of persistently higher inflation. Two-year yields edged up about two basis points to 3.97% as traders pared wagers on Fed easing, pricing in about 45 basis points of cuts by the end of the year, compared with 49 basis points on Friday.
The bond market awaits the start of a two-day Fed meeting on Tuesday. While officials are widely projected to keep rates steady, they’re set to release a quarterly update of economic and interest-rate projections, known as the dot plot. In March, Fed officials had outlined two cuts for this year.
“If there’s any risk going into the Fed meeting, it is a downward revision from two to one rate cuts as it only takes a member or two to change that equation,” said Kevin Flanagan, head of fixed-income strategy at WisdomTree.
Longer-maturity Treasuries continued to trail the market after an auction of 20-year bonds, although the sale drew the expected yield level. That was a notable improvement from last month’s cheaper-than-expected offer of the tenor, which sparked a broad selloff. Monday’s $13 billion auction was held two days earlier than normal due to the Fed meeting ending Wednesday and the US holiday on Thursday.
Bond Sellers
US Treasuries are down since tensions between Israel and Iran turned into a direct conflict — and selling pressure is likely to have a lasting effect if past episodes of clashes are any guide.
Iran’s direct strikes in April 2024 and another flare-up between the two nations in October pushed up US yields rapidly and kept them elevated over a 30-day period, data compiled by Bloomberg showed.
Oil prices initially spiked on the back of weekend attacks between Israel and Iran, but the moves later eased. On Monday, West Texas Intermediate tumbled as much as 4.9%, but was last down around 2.3%.
