US Treasury yields steady as Fed bets offset Oil calm
- The US 10-year yield edges higher as Middle East tensions stabilize Oil.
- The US 2-year yield rises as markets price 2026 Fed tightening.
- Warsh, JOLTS, ISM and NFP to drive next yield catalyst.
US Treasury yields steadied on Monday during the North American session, as tensions in the Middle East halted the decline in crude Oil prices, while money markets are still pricing in at least 34 basis points of Federal Reserve tightening in 2026.
Yields hold firm as Fed tightening bets counter softer US Dollar
The US 10-year Treasury note yield, the benchmark, rises by 1 basis point to 4.38%. Negotiations between the US and Iran teams are expected to take place in Doha, Reuters reported, citing a source.
The US 2-year Treasury yield – the most sensitive to changes in monetary policy - rises nearly 2% to 4.11%. Money markets had so far priced in 34 bps of Fed tightening towards the end of the year.
Meanwhile, the US Dollar Index (DXY), which tracks the buck’s performance against a basket of six currencies, recoils during the day, down to 101.08, and falls 0.28% as traders seeking risk move towards riskier assets.
The 5- and 10-year breakeven rates, a market-based measure of inflation expectations, are at 2.21% and 2.20%, respectively, after peaking in mid-April at 2.72% and 2.5%, respectively.
The US economic schedule will be busy. Aside from the appearance of the new Fed Chair, Kevin Warsh, at Sintra in Portugal, the docket will feature JOLTS job openings, the ISM Manufacturing PMI, jobless claims, and the US Nonfarm Payrolls for June, which are expected to provide clues about the jobs market.
US 10-year Treasury yield chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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