Treasury yields showed mixed performance on Friday as investors analyzed new economic data and growing tensions in the Middle East. Cooler-than-expected producer and consumer price data, along with lower U.S. jobless claims at a seasonally-adjusted 208,000 for the week ending July 11, contributed to a fall in borrowing costs. This data suggested the U.S. economy might be weathering inflationary pressures. The yield on the 10-year Treasury note dropped more than 2 basis points to 4.541%, and the 30-year Treasury yield fell over 3 basis points to 5.064%.
Conversely, shorter-dated yields increased, with the 2-year Treasury note yield rising more than 1 basis point to 4.172%. This rise in shorter-term yields often aligns with Federal Reserve interest rate policy decisions. Despite the mixed yields, rate futures indicate that over two-thirds of the market anticipates a Fed rate hike by the end of the year, although a hold is expected for the current month. The University of Michigan's index on consumer sentiment also rose to 54.4, surpassing a Dow Jones consensus of 50.5, with survey director Joanne Hsu noting broad-based increases across demographics.
However, persistent geopolitical instability in the Middle East, specifically escalating tensions between the U.S. and Iran, pushed energy prices higher. U.S. West Texas Intermediate futures for August delivery were up 4% to above $82, and Brent crude, the international benchmark, was also up 4% to above $87. These rising energy costs sparked concerns about potential impacts on the Federal Reserve's interest rate path and long-term inflation projections, even as a core disinflationary trend provides some buffer. The conflict disrupted regional shipping routes, leading to an initial broad-based rout in sovereign debt before a flight-to-safety bid emerged, helping to stabilize prices and support fixed-income assets.
