Bond yields tumbled a and crude oil surged to a six-month-high following reports that Israel is bracing for a possible attack from Iran.
Oil jumped to the highest since October and US Treasuries rallied sharply on Friday, pulling yields from near year-to-date highs, as anticipated escalation of Middle East warfare stoked demand for havens.that has roiled oil markets. Global benchmark Brent rallied above $US92 a barrel. Futures have surged 19 per cent this year with the war adding risk premium to the market.
Yields on US two- to 10-year notes tumbled as much as 10 basis points at one stage – amid gains for government bonds globally. Two-year yields, which briefly topped 5 per cent on Thursday for the first time since November, fell below 4.86 per cent. The rally comes on the heels of the Treasury market’s worst two days since February, a selloff driven by inflation readings that savaged expectations for Federal Reserve interest-rate cuts this year. Two-year yields, more sensitive than longer-maturity debt to changes in Fed policy, remain about 13 basis points higher on the week.
Friday’s flight from risk assets – and a surge in crude oil futures toward multi-month highs – partially restored rate-cut expectations, with derivatives contracts pricing in about 47 basis points of easing by year-end, up from this week’s lows around 40 basis points. Still, as recently as a month ago, the market was pricing in the 75 basis points of cuts that Fed policymakers considered likely at the time of their most recent meeting.
Boston Federal Reserve president Susan Collins said she remains “very optimistic” that inflation will slow despite this week’s consumer price index readings, but sees cuts beginning later than previously thought.US yields extended declines paced by eurozone bond market, which rallied after a European Central Bank official said it shouldn’t be afraid to shift its “overly prudent” stance on interest rates away from the Fed’s.
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