Key Takeaways:
US Treasury yields fell across the curve Tuesday, with the 10-year note dropping 7 basis points to 4.4886%, as hopes for an imminent reopening of the Strait of Hormuz reduced demand for safe-haven assets.
"The move reflects an unwind of the geopolitical risk premium that had built into rates over the past week," said Priya Misra, portfolio manager at Brandywine Global Investment Management. "Any resolution in the Strait of Hormuz removes a significant tail risk for energy markets and global inflation."
The 2-year yield declined 7.65 basis points to 4.0445%, while the 30-year bond yield fell 4.19 basis points to 5.0222%, briefly dipping below 5% to a session low of 4.9958%. The 2/10 spread widened 0.706 basis points to plus 44.178 basis points, reflecting a steeper curve as longer-dated yields outperformed. Real yields also declined, with the 10-year Treasury Inflation-Protected Securities yield falling 7.37 basis points to 2.0690%.
The selloff in bonds comes as traders reassess the geopolitical landscape following reports of progress toward reopening the key oil transit chokepoint. The Strait of Hormuz, through which about a fifth of global oil supply passes, had been a source of elevated uncertainty in recent weeks, pushing investors into government debt. The retreat from Treasuries signals a rotation back into risk assets, with the S&P 500 rising 0.6% and the dollar index slipping 0.3% to 99.8. West Texas Intermediate crude fell 2.1% to $71.45 a barrel as the supply disruption risk receded.
The move lower in yields also reflects shifting expectations for Federal Reserve policy. With the 2-year yield — the most sensitive to Fed rate expectations — falling more than the long end, markets are pricing in a slightly higher probability of rate cuts later this year. Traders will now focus on the next Fed meeting in June for any shift in the central bank's forward guidance.
This article is for informational purposes only and does not constitute investment advice.
