Bond Selloff Stalls on Report of Progress in US-Iran Talks
(Bloomberg) — Treasuries rose in early trading in the U.S. as investors saw signs that the United States and Iran were making progress toward a deal, halting a global bond selloff that had pushed yields to multi-year highs.
Most Read from Bloomberg
The yield on US bonds fell as much as three basis points on Monday after Washington reported that it had offered a temporary exemption from Iran oil sanctions until a final agreement, Iran’s semi-official Tasnim newspaper reported, citing a source close to the negotiating team.
The move brought some relief to a market shaken by concerns about the economic impact of war-induced price increases, as long-term bond yields rose sharply in Japan, Britain and the United States. The yield on 30-year Treasury bonds on Monday remained around 5.12% after reaching its highest level since 2023 at the beginning of the session.
“There is no anchor above 5 percent,” said Guneet Dhingra, head of U.S. interest rate strategy at BNP Paribas, and advised clients to target a 5.25 percent to 5.5 percent trading range on the 30-year bond. “Long-term Treasury bondholders are becoming increasingly more sensitive to prices than they used to be.”
The concern driving the recent sell-off is that the increase in energy prices resulting from the closure of the Strait of Hormuz will force central banks, including the Federal Reserve, to keep interest rates high. Add to that concerns about the U.S. deficit and signs that the economy remains resilient, and the result is that investors are seeking more compensation for owning longer-dated Treasuries.
Amanda Agati, chief investment officer of PNC Asset Management Group, said on Bloomberg Radio: “As we see yields rise, it’s a reflection of this long-running dispute and related to that, time is clearly not on our side.”
For policymakers, higher inflation will make it harder for the central bank to lower interest rates and put pressure on new Fed Chairman Kevin Warsh. While investors were betting on two quarter-point interest rate cuts this year before the war, interest rate swaps now point to a rise in March 2027 as a virtual certainty to combat inflation pressures.
Ed Yardeni, president and chief investment strategist at Yardeni Research, said the Fed should abandon its easing bias at its June meeting, adding that it was “no longer” appropriate in the current market environment. Later in the week, the Fed will release minutes from its April meeting, which will give investors clues about the central bank’s thinking.
