FX.co ★ US 10-Year Holds Pullback

The yield on the 10-year US Treasury note stood at 4.6% on Wednesday, extending its pullback from this week’s 18‑month high of 4.75%, as lower fuel prices reduced the perceived risk of another Federal Reserve rate hike. Wholesale gasoline and diesel prices fell from recent peaks amid signs from US officials of ongoing efforts to reach an agreement with Iran that could restore energy exports from the region. These developments eased concerns about persistent price pressures after the previous surge in oil prices had driven core inflation higher in the second quarter. Dovish members of the FOMC also drew support from a subdued ADP employment report. Even so, the yield curve remained significantly higher following the Fed’s July decision. Chairman Warsh stopped short of clearly endorsing the need for higher Fed funds rates to contain inflation, a stance that pushed long-term yields sharply higher even as short-term yields edged lower. In response, the Treasury concentrated the increase in its borrowing needs in short-dated bills, leaving issuance of notes and bonds unchanged.