The yield on the 10-year US Treasury note eased to 5.17% on Friday, retreating slightly after a sharp three-session sell-off had driven the benchmark rate up by 23 bps to around 5.20%. A pullback in oil prices, amid indications that US and Iranian negotiators may be working toward a phased agreement to reopen the Strait of Hormuz, offered some support to the bond market.
Even with the modest decline, borrowing costs remain near their highest levels since 2007, as markets continue to discount the likelihood of further monetary tightening by the Federal Reserve. Futures currently imply roughly a 70% probability of another 25 bps rate increase at the Fed’s next meeting, while interest rate swaps are pricing in three additional quarter-point hikes over the coming year.
Strong economic momentum and mounting concerns over the US fiscal outlook are also pressuring Treasuries. While demand at Tuesday’s 2-year Treasury auction was solid, the subsequent 5-year sale met with unexpectedly weak investor interest.
