02.03.202618:01:31UTC+00US 10-Year Yield Surges 10bps

The yield on the 10-year US Treasury note jumped more than 10 basis points to 4.05% on Monday, reversing last week’s bond rally. Rising inflation risks reinforced expectations that the Federal Reserve will keep monetary policy restrictive, overshadowing the impact of weaker risk appetite.

Geopolitical tensions escalated after the United States reportedly struck Iranian targets and killed Iran’s supreme leader, prompting Iran to launch a series of attacks on civilian sites and energy infrastructure over the weekend and leading major shipping companies to halt trade through the Persian Gulf. The disruption sent energy commodity prices sharply higher, stoking fears of renewed inflationary pressures that could compel the Fed to maintain elevated interest rates for longer.

These concerns were amplified by an unexpected surge in the ISM manufacturing prices index to a three-year high, while resilient new orders further undercut the case for dovish voices within the FOMC. Markets still anticipate the first Fed rate cut at the July meeting, but rate traders increased the probability of an additional cut in September during the session.