Treasury yields were volatile this past week as investors reacted to Middle East headlines, oil prices, inflation worries, and shifting expectations for Federal Reserve policy.
According to the Federal Reserve’s H.15 data, the 2-year Treasury moved from 4.07% on May 18 to 4.13% on May 19, then fell to 4.04% on May 20 before ending May 21 at 4.08%. The 5-year moved from 4.27% to 4.32%, then dropped to 4.22% and finished May 21 at 4.25%. The 10-year rose from 4.61% on May 18 to 4.67% on May 19, then slipped to 4.57% by May 20 and stayed there on May 21.
The biggest pressure point was the long end of the curve. On Tuesday, the 10-year Treasury hit its highest level since early 2025, while the 30-year reached levels not seen since 2007. The move reflected a market worried that higher oil prices tied to the Iran conflict could keep inflation higher for longer.
By Wednesday, yields backed off sharply. Reports of progress toward ending the Iran conflict helped oil prices fall, with Brent crude dropping more than 5%. That eased inflation fears and pulled the 10-year Treasury back below 4.60%.
The 2-year Treasury was more tied to Fed expectations. It rose when investors worried the Fed may need to stay hawkish, then eased as oil prices cooled. On Friday, yields ticked higher again after hawkish Fed commentary and a weaker consumer sentiment reading. Barron’s reported the 2-year at 4.117% and the 10-year at 4.572% after the University of Michigan consumer sentiment index fell to 44.8 from 49.8.
The yield curve remained upward sloping from 2 years to 10 years, but the week showed how sensitive the curve has become to inflation headlines. When oil fears rose, longer rates led the move higher. When peace hopes improved, the 5-year and 10-year quickly reversed.
What Could Move Rates Next Week?
Next week brings several economic releases that could move Treasury yields. The New York Fed calendar shows Consumer Confidence and Dallas Fed Manufacturing on May 26, new home sales and regional Fed surveys on May 27, and a bigger data day on May 28 with initial claims, durable goods, second estimate GDP, and Personal Income and the PCE Deflator.
The PCE inflation report is the key number. If inflation comes in hotter than expected, the 2-year could rise as markets price in a more hawkish Fed. If inflation cools, the front end may rally. The 10-year will also remain highly sensitive to oil prices and any political development tied to the Iran conflict, especially anything that changes expectations for energy supply and inflation.
For now, the bond market is caught between two forces: geopolitical inflation risk pushing yields higher, and any sign of peace or softer data pulling them back down.
Sources
- Federal Reserve H.15 Treasury Yield Data
Daily Treasury constant maturity rates for the 2-year, 5-year, and 10-year U.S. Treasury yields. - New York Fed Economic Calendar
Calendar of upcoming U.S. economic releases, including inflation, GDP, employment, and manufacturing data. - MarketWatch: Treasury Yields Rise Amid Oil and Geopolitical Concerns
Market reporting on Treasury yield movements, oil prices, and investor reactions to geopolitical events. - Associated Press: Oil Prices and Middle East Developments Impact Markets
Reporting on geopolitical developments, oil prices, and market reaction. - Barron’s: Treasury Yields, Fed Commentary, and Consumer Sentiment
Coverage of Treasury market reaction to Fed commentary and the University of Michigan consumer sentiment report. - University of Michigan Consumer Sentiment Survey
Used for consumer sentiment data referenced in the article.
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Billy Lee, CEO of Great White Financial, is a sportsman, businessman, artist, speaker, writer, and producer.
Billy is the Founder of the Wellness Institute for Economic Growth and Kairos Athletics.
