Yields edge higher despite Iran, Israel halting attacks. Treasury yields climbed overnight as Israel and Iran exchanged fire, before reversing this morning after both sides signaled a pause to the fighting. The 2-year yield closed 1bp higher at 4.16%, while the 10-year yield closed 3 bps higher at 4.56%. Brent crude hit an intraday high of $98 per barrel overnight on the attacks in the Middle East before retreating alongside yields, now trading around $94.Meanwhile, AI-driven gains lifted equities, with the S&P 500 and NASDAQ closing 0.30% and 0.86% higher, respectively.
Israel, Iran agree to pause strikes following weekend attacks. Iran and Israel engaged in a series of strikes after Iran initiated offensive fire on Sunday. President Donald Trump called for an immediate halt, with Israeli Prime Minister Benjamin Netanyahu agreeing to hold fire, but threatening a response if Iran attacks again. Iran also agreed to stand down, though cautioned that if Israel resumed attacks, including in Southern Lebanon, that “much harsher and more crushing actions than before will be on the way.” The exchange highlights the fragility of negotiationsas the US works towards a peace deal with Iran. Trump posted on social media today that final stages of talks were “proceeding, subject to ignorance or stupidity getting in the way.”
May CPI print could show true inflationary impact of Iran war. May CPI data, due Wednesday, is expected to show consumer prices rose 0.5% MoM and 4.2% YoY, up from 0.6% and 3.8% in the prior period. A hot headline reading, on the heels of last week’s strong jobs report, would likely fuel market expectations of a Fed rate hike later this year. Core CPI, which excludes food and energy, is expected to come in at 0.3% MoM and 2.9% YoY, versus 0.4% and 2.8% in April. A modest core reading could counter rate hike bets and offer cleaner insight into the war’s true inflationary impact, stripping out energy-driven noise.
