The yield on the US 10-year Treasury note slipped below 4.5% on Thursday, pulling back from an intraday high of 4.53%, as investors weighed ongoing tensions in the Middle East and mixed signals over a possible US–Iran agreement that could end the conflict and reopen the Strait of Hormuz.
On the data front, both headline and core PCE inflation for April came in softer than expected, at 0.4% and 0.2% month-on-month, respectively. However, on an annual basis, inflation remains well above the Federal Reserve’s 2% target, at 3.8% for headline and 3.3% for core PCE. Personal spending rose in line with expectations, while first-quarter GDP growth was revised lower, pointing to some loss of momentum in the broader economy.
In terms of monetary policy, Fed Vice Chair Jefferson cautioned that inflation risks are still skewed to the upside, and Minneapolis Fed President Kashkari reiterated that consumer prices remain “much too high.” Market participants are concerned that a prolonged closure of the Strait of Hormuz could push energy prices higher, keep inflation elevated, and compel the Fed to hold interest rates at restrictive levels for longer.
