US Treasury yields edged higher on Wednesday, as investors continued to assess escalating tensions in the Middle East and weigh the likely path of Federal Reserve monetary policy in the coming months.
The yield on the 10-year Treasury note, a key benchmark for US government borrowing, was largely unchanged at 4.626%.
The more policy-sensitive 2-year Treasury yield, which closely tracks expectations for short-term interest rates, dipped by 1 basis point to 4.251%. The long-term 30-year Treasury yield held steady at 5.132%.
One basis point equals 0.01%, and yields move inversely to bond prices.
The US Central Command conducted an 11th consecutive overnight strike against targets in Iran. Early Wednesday, US Secretary of State Marco Rubio, speaking at an ASEAN foreign ministers' meeting in the Philippines, stated that Iran "lacks sincerity" regarding peace negotiations.
He added, "If there is sincerity on the other side, the US is equally willing to negotiate in earnest. If not, we will take all necessary actions to defend our interests and those of our allies."
The latest escalation helped push oil prices higher, with gains of up to 4% in early trading. Concurrently, investors continued to evaluate the potential for more hawkish policy moves from the Federal Reserve.
In a research note Wednesday morning, Deutsche Bank analyst Jim Reid wrote, "By the close on Tuesday, pricing for a July hike had risen to 26%, its highest level since last week's cooler US CPI print. The day before the CPI data, it was 45%, and it fell to 10% after the release."
According to the CME FedWatch Tool, money market pricing currently implies a 24.1% probability of a rate hike by the Fed this month, and a 69% chance of at least a 25-basis-point hike by September.
Investors are also looking ahead to the preliminary S&P Global US Purchasing Managers' Index data due on Friday, which measures economic activity in the manufacturing and services sectors.
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