US Treasury yields rose for a second consecutive day on the 22nd (US Eastern time) afternoon, with short-term maturities showing relative weakness. The 2-year yield reached 4.3020% at 3pm, up 3.80bp, marking the highest level since February last year. The 10-year yield stood at 4.6570%, up 2.90bp. Heightened Iran-US tensions pushed Brent crude oil to $94.07 per barrel, while futures markets raised the probability of a Federal Reserve rate hike at next week's FOMC meeting (28th-29th) to over 30%. The yield curve flattened in a bear flattening pattern as investors priced in tighter monetary policy amid rising energy costs and geopolitical risks.
Treasury Yields Reach Multi-Month Highs Across Maturities
According to Yonhap Infomax's overseas interest rate intraday screen (screen number 6532), at 3pm on the 22nd (US Eastern time), the 10-year Treasury yield traded at 4.6570%, up 2.90bp from the previous trading day's 3pm reference price. The 2-year yield, sensitive to monetary policy, rose 3.80bp to 4.3020% during the same period. The 30-year Treasury yield increased 1.60bp to 5.1460%. The spread between 10-year and 2-year yields narrowed from 36.40bp on the previous trading day to 35.50bp. Treasury yields entered New York trading with modest gains before rising further, centered on the 2-year maturity. The intraday movement in New York was similar to the previous day. The 10-year and 30-year yields renewed their highest levels since late May in the mid-4.6% and mid-5.1% ranges respectively. The 2-year yield temporarily rose to 4.3130%, setting a new high since February last year.
Trump Threatens Iran Over Strait of Hormuz as Brent Crude Hits $94
President Donald Trump warned via Truth Social during the morning session: "From this moment on, whenever Iran fires at ships in the Strait of Hormuz using missiles, rockets, drones, or any other device or weapon, the United States will bomb and destroy one bridge or power plant, including facilities located near or within the capital Tehran." Iranian leadership and military subsequently issued statements expressing their determination to respond. Mohammad Bagher Ghalibaf, Speaker of the Iranian Parliament responsible for US negotiations, wrote on his X (formerly Twitter): "If we cannot export oil, no one in the region (Middle East) will be able to export oil." Ghalibaf emphasized: "If our security is not guaranteed, no infrastructure will be safe, and the security of the (Hormuz) Strait will only be guaranteed when US forces are absent." Iranian Foreign Minister Abbas Araghchi stated: "Our defense action guidelines are clear. An eye for an eye." International oil prices continued their fourth consecutive day of gains. Brent crude September futures closed at $94.07 per barrel, surging 3.36% from the previous session—the highest closing price for the nearest-month contract since the 8th of last month.
20-Year Treasury Auction Shows Weak Demand at 5.163% Yield
The 20-year Treasury auction held in the afternoon session showed poor results. Weak demand flowed in, and the auction settled at a yield higher than market expectations. According to the US Treasury Department, the 20-year Treasury reopening auction of $13 billion yielded 5.163%, up 23.6bp from 4.927% at last month's auction. This auction yield was the highest since October 2023 (5.245%) and the second-highest level since the 20-year maturity was reintroduced in May 2020. The issuance yield was 0.5bp above the When-Issued trading yield, meaning the yield was determined higher than market expectations. A 10-year Treasury Inflation-Protected Securities (TIPS) auction worth $21 billion follows the next day.
Fed Rate Hike Probability Rises to 33.7% for Next Week
According to the CME FedWatch, the federal funds rate (FFR) futures market at 3:28pm New York time priced in a 33.7% probability that the Fed will raise rates next week, up from the mid-20% range on the previous trading day. The probability of a September rate hike rose from the high-60% range on the previous trading day to the high-70% range. FHN Financial macro strategist Will Compernolle recalled that Fed Governor Christopher Waller recently made hawkish comments. Compernolle stated: "Waller's tone shifted hawkish completely independent of energy (inflation) pass-through," adding "This set a new baseline for a hawkish policy trajectory unrelated to the war's developments." Governor Waller said in a speech on the 13th that if core inflation comes in high again, a rate hike "in the near term" may be necessary. There were no significant US economic indicator releases on this day. This week's US economic indicator schedule is considerably quieter than usual.
FAQ
What level did the US 2-year Treasury yield reach on the 22nd?
The US 2-year Treasury yield reached 4.3020% at 3pm on the 22nd (US Eastern time), up 3.80bp from the previous trading day. This marked the highest level since February last year. The yield temporarily rose to 4.3130% during the session.
What did President Trump threaten regarding Iran and the Strait of Hormuz?
President Trump warned via Truth Social that whenever Iran fires at ships in the Strait of Hormuz using any weapon, the United States will bomb and destroy one bridge or power plant, including facilities located near or within Tehran. Iranian officials responded with statements emphasizing their determination to counter any threats.
What was the result of the 20-year Treasury auction?
The 20-year Treasury reopening auction of $13 billion yielded 5.163%, which was 0.5bp above the When-Issued trading yield. This represented weak demand and was the highest auction yield since October 2023, marking the second-highest level since the 20-year maturity was reintroduced in May 2020.
