10-year Treasury yield trades below key level after a drop in oil prices eases inflation fears

By Christine Idzelis and Jamie Chisholm

Yield on 10-year Treasury nearly flat Tuesday and remains down from levels seen Monday as oil prices briefly surged above $100 a barrel

As oil prices steady, albeit at relatively elevated levels, the market's attention will turn to Wednesday's February CPI reading.

Long-term Treasury yields edged higher Tuesday, with the 10-year rate trading below its 200-day moving average as investors monitored oil prices amid the Iran conflict.

The yield on the 30-year Treasury bond BX:TMUBMUSD30Yrose 3.3 basis points to 4.772%, while the rate on the 10-year Treasury note BX:TMUBMUSD10Y increased less than 1 basis point to finish nearly flat at 4.135%, according to Dow Jones Market Data. The closely watched 10-year yield, which influences borrowing costs for consumer and companies, traded below its 200-day moving average of 4.20%, FactSet data showed.

"Yields have moved higher since the war began" at the end of February, but they appear to have "stabilized," said James Ragan, director of investment management and research at D.A. Davidson, in an interview Tuesday.

On Monday, the 10-year Treasury yield had jumped to 4.21% as investors worried that a spike in oil prices to more than $100 a barrel because of the Middle East war would reignite inflationary pressures. But oil prices dropped later that same day after President Donald Trump suggested the war may soon end. On Tuesday afternoon, West Texas Intermediate crude (CL00) (CL.1) was trading down at around $86 a barrel.

The yield on the shorter-term 2-year Treasury note BX:TMUBMUSD02 , which is sensitive to expectations for the Federal Reserve's policy rate, fell 2.5 basis points Tuesday to 3.567%, according to Dow Jones Market Data.

"We expect the 2-year yield to drift lower again this year as Fed rate cuts come into view, provided the war soon concludes and the reopening of the Strait of Hormuz allows energy prices to fall back," Oxford Economics analyst John Canavan said in a note Tuesday.

The 2-year Treasury rate had popped to 3.64% on Monday as investors reasoned that the prospect of burgeoning inflation would reduce the Fed's ability to cut interest rates later this year. However, yields pulled back late Monday after oil prices slumped from highs as investors appeared encouraged by Trump's signaling that the end of the war may be near.

Check out: Trump announces sanctions relief to ease oil prices, says Iran war to end 'very soon'

As oil prices steady, albeit at relatively elevated levels, the market's attention will turn to a reading on inflation in February from the U.S. consumer-price index on Wednesday.

While "there is a feeling that maybe we're going to have a little bit higher inflation in the U.S." because of the war, price pressures stemming from fighting in March won't show up in Wednesday's CPI report, said Ragan.

Meanwhile, the 10-year Treasury yield has mostly kept within a recent trading range of 4% to 4.25%, Ragan added.

In Europe, markets played catch-up with the full extent of the oil-price and Treasury-yield pullbacks.

The 10-year U.K. gilt yield BX:TMBMKGB-10Y, which, at one point on Monday was up 14 basis points to 4.71% before easing back, was down further Tuesday afternoon at around 4.5%.

Germany's 10-year bund yield BX:TMBMKDE-10Y hit 2.93% on Monday and was down to around 2.84% on Tuesday afternoon. The yield dip came as the chance of a rate rise by the European Central Bank by September fell below 50%, according to data from Refinitiv.

-Christine Idzelis -Jamie Chisholm

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03-10-26 1621ET