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Treasury yields ease as oil dips on Strait of Hormuz reopening hopes

The 2-year note yield fell to 4.187%, and Fed funds futures now price 55% odds of a September hike.

Reported · Written up by our desk · Government Bonds

Treasury yields fell on Wednesday, led by a drop in oil prices tied to hopes that the Strait of Hormuz could reopen, while investors also looked ahead to economic data culminating in Friday’s July employment report, according to Reuters via LiveMint Markets.

U.S. President Donald Trump said there was an “all-day negotiation” with Iran on Tuesday, describing the talks positively while also warning he would hit Iran “really hard” if no deal is reached. Reuters reported that a proposed Iran-Oman deal would give Iran control over ships entering the Gulf through the strait, marking one of the biggest concessions yet, and noting that yields have been whipsawed as hopes and disappointments alternate.

The 2-year note yield fell 0.66 basis points to 4.187%, the lowest since July 20, as traders focus on Federal Reserve expectations. Fed funds futures pricing showed 55% odds of a September rate hike, down from 68% on Monday.

Market pressure also eased after the Treasury said it will keep coupon issuance and floating-rate note issuance steady for at least the next several quarters, a move one rates strategist called “positive” for the sector. Reuters added that traders are watching Friday’s jobs report, with expectations that employers added 80,000 jobs in July.

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