U.S. Treasury yields edged lower across the curve on Tuesday as investors mapped escalating tensions across the Middle East and reports of mediation efforts to put a stop to ongoing hostilities.
The yield on the 10-year U.S. Treasury note — the key benchmark for U.S. government borrowing — was broadly flat at 4.594%.
The 2-year Treasury note yield, which more closely tracks short-term Federal Reserve interest rate policy, rose over 1 basis point to 4.198%. The longer-dated 30-year Treasury bond yield was also flat at 5.118%.
One basis point is equal to 0.01%, and yields and prices move inversely to each other.
BMO Capital Markets said the Treasury market has remained relatively steady despite the latest escalation in the Middle East, as reports that mediators have tabled fresh ceasefire proposals tempered oil prices on Tuesday.
With little U.S. economic data due this week, however, strategists warn that government bonds could remain vulnerable to abrupt moves in energy prices and developments in the Iran conflict.
“The degree to which nominal yields can decline will be tempered by the market’s ongoing focus on the energy sector and geopolitical tensions,” the BMO strategists said, adding that July and August inflation reports would be needed before investors could conclude that energy-driven inflation pressures had peaked.
In the U.K., 10-year gilt yields rose 8 basis points on Monday after new prime minister Andy Burnham said he would use flexibility within the government’s fiscal rules. U.K. bond yields are looking more stable this morning, easing off a touch.
Investors will be monitoring the latest S&P Global Flash U.S. PMI report due Friday, which measures the economic health of American manufacturing and services sectors.
— CNBC’s Lee Ying Shan also contributed to this report.
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