U.S. Bond Market: Treasuries Little Changed, Limited Reaction to Trump's Latest Threats

U.S. Treasury yields finished little changed on Monday, even after President Trump threatened that if Iran does not comply with the extended deadline and the Straits of Hormuz are opened on Tuesday, the U.S. will destroy Iran. As a key gauge of expectations for Middle East supply, the oil price’s reaction to the threat was also limited.

Shortly after 3:00 p.m. New York time, changes in Treasury yields from Friday’s closing levels were within 2 basis points, with yields fluctuating in a narrow range throughout the trading day; the intraday trading ranges for the 2-year and 10-year Treasury yields were both under 5 basis points, the first time in more than a week.

Since oil prices surged after the U.S. launched a war against Iran on Feb. 28, oil has been one of the main factors driving changes in bond yields. On Monday, oil prices rose; U.S. benchmark WTI crude futures were up 0.8% and closed at the highest level since 2022, though the earlier 3.5% gain narrowed somewhat.

Market expectations for the Federal Reserve’s rate path were also little changed; overnight index swap contracts tied to future rate decision dates show that the market views the likelihood of the Fed cutting rates this year as extremely low, and it is almost fully pricing in one rate cut in 2027.

Citi economists revised their forecast for Fed rate cuts based on the March employment data released last Friday that beat expectations. They now expect the next action to be in September, instead of June.

Monday’s release of the March ISM services report had limited impact on the market. Although the overall index and the employment sub-index both fell more than economists had expected, the prices and new orders sub-indexes were above expectations.

U.S. Treasury auctions for the 3-year, 10-year, and 30-year maturities will begin on Tuesday; several recent coupon Treasury auctions last month received weak subscriptions, partly because market volatility was intense, discouraging investor participation.

3:30 p.m. U.S. Eastern time,

The 2-year Treasury yield was 3.8436%;

The 5-year Treasury yield was 3.9795%;

The 10-year Treasury yield was 4.3326%;

The 30-year Treasury yield was 4.8866%;

The yield spread between the 5-year and 30-year Treasuries was 90.54 basis points;

The yield spread between the 2-year and 10-year Treasuries was 48.49 basis points.

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By Ding Wenwu