Yields decline as oil prices relieve inflation concerns. Treasury yields continued to fall alongside oil prices today, helping to ease worries about the impact of elevated energy costs on inflation. The 2-year yield closed 3 bps lower at 4.09% and the 10-year yield closed 2 bps lower at 4.37%, both down 8 bps on the week. Meanwhile, Brent crude is now trading around $73 per barrel, down nearly 3% on the day. Equities continued to inch lower to close out a volatile week, with the NASDAQ down 0.24% and the S&P 500 nearly unchanged.
Consumer sentiment rises as lower gas prices provide relief. The University of Michigan’s final June consumer sentiment print was revised up to 49.5, a notable bounce back from May’s record low 44.8. The recovery was broad-based across age, income, and political affiliation, driven largely by gasoline prices retreating from their May peak, following de-escalation in the Strait of Hormuz. Still, the index sits roughly 19% below year-ago levels, with consumers continuing to cite high prices as the dominant strain on their finances. Inflation expectations cooled slightly but remain elevated, with consumers expecting a 4.6% increase in prices over the next year and 3.3% over the next 5-10 years. Both measures remain well above pre-war levels.
Strait of Hormuz attack threatens ceasefire, oil price relief. A cargo ship in the Strait of Hormuz was struck by an Iranian drone today, a day after a separate container ship was hit in the strait. Following yesterday’s attack, vessels have reportedly been hugging the coast of Oman in an effort to avoid Iranian waters. President Trump called the drone strike “a foolish violation of our Ceasefire Agreement.” In response, late this afternoon the US launched missile strikes on Iranian drone storage facilities, raising fresh doubts about the durability of the ceasefire. The US and Iran remain at odds over the future of the waterway, as Iran seeks to maintain control and the US insists passage must be free. There is growing concern that Oman and Iran may impose a tolling system on the strait, which could cost shippers and commodity traders tens of billions of dollars annually and threaten to reverse last week’s drop in crude oil prices.