Oil prices saw gains early Monday as a resolution to the ongoing tensions around the Strait of Hormuz remained out of reach. This comes amid reports of an unconfirmed missile attack in the region and fragile US-Iran talks. The United States and Iran continue to disagree on reopening terms for the Strait, a critical shipping lane. Iran's demands include an end to the war, lifting U.S. sanctions, releasing frozen assets, and compensation for war damages, while also proposing tolls of 5-7% of cargo value for passage through Iranian-side routes. Oman is reportedly considering a 3% fee.
These rising oil prices are fueling inflation concerns, consequently pushing U.S. Treasury yields higher. West Texas Intermediate (WTI) crude for September delivery is up 1.58%, and Brent crude for October delivery is up 1.98%. The 10-year Treasury yield in the New York bond market rose 3.00 basis points to 4.650%, the 2-year yield increased 4.00 basis points to 4.227%, and the 30-year yield climbed 2.00 basis points to 5.196%.
Conversely, an unexpected slight increase in U.S. initial jobless claims for the week ending on the 1st, totaling 199,000 (an increase of 1,000 but below market expectation of 202,000), provided some downward pressure on Treasury yields from their intraday highs. Rising unemployment typically weakens expectations for rate hikes, which can lower bond yields. However, the prevailing uncertainty surrounding the Strait of Hormuz and its impact on oil prices continued to drive bond market angst.
