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(Bloomberg) -- Treasuries rose as the recent surge in oil prices stalled and bond investors were drawn to 30-year yields that topped 5% for the first time this year.
Benchmark yields — which earlier climbed to the highest levels in at least several weeks as global benchmark Brent crude oil reached a four-year high — were lower by two to six basis points at midday Thursday in New York. Short-maturity yields declined the most. The 30-year yield was back to 4.98%.
Yield increases on Wednesday had also been driven by the Federal Reserve’s decision to leave rates unchanged, as expected. Hawkish votes against the policy statement, which characterized the risks to the economy as balanced, led traders to price in lower chances of a rate cut at any point before 2028 and the possibility of a rate increase during the first half of 2027.
“Treasuries found a stabilizing bid overnight but remain within striking distance of the local lows,” said Ian Lyngen, head of US interest-rate strategy at BMO Capital Markets. “Wednesday’s Fed meeting showed that the Committee has become increasingly reluctant to deliver further rate cuts.”
Brent crude declined to around $114 a barrel from highs above $126. While oil price moves since late February have been tied to the supply disruption caused by US military action against Iran, Thursday’s were complicated by a surge in the value of the yen from its cheapest level versus the dollar since mid-2024, reportedly assisted by Japanese official intervention. Rising oil prices have bolstered the dollar and weakened the yen and other currencies of oil-importing countries.
The Treasury rally showed that the market continues to take cues primarily from energy prices, which have put upward pressure on broad inflation gauges, potentially blocking the Fed and other central banks from cutting interest rates.
Treasuries also were supported by the potential for calendar-driven trading. Month-end rebalancing of bond indexes to incorporate new securities sold during the month can drive buying by index funds and other passive investors around the time it occurs. Bloomberg’s dollar-denominated bond indexes are set to be rebalanced at 4 p.m. New York time.
Also, the relative performance of US stock and bond markets in April is expected to drive selling of stocks and buying of bonds to rebalance portfolios.
Before the start of the war, traders were pricing in more than two reductions by the Fed this year, with some expecting Kevin Warsh — on track to become the next chair by mid-May — to support the resumption of policy easing.
This week, markets flipped from pricing in a roughly 40% chance of a quarter-point cut in 2026 to roughly 5%, and as much as a 50% chance of a quarter-point increase by mid-2027.
Wednesday’s Fed decision is not one “that clears the path for near‑term easing,” said Daniel Siluk, portfolio manager at Janus Henderson Investors. It “suggests a Federal Reserve that is patient, cautious, and increasingly sensitive to inflation shocks, particularly those tied to energy and geopolitics.”
Economists at Morgan Stanley scrapped their forecast for Fed rate cuts this year and called for two cuts in 2027. Goldman Sachs economists maintained their forecast for cuts in September and December but said it was contingent on labor-market softening “and therefore see the risks as tiled toward a longer pause.”
Thursday’s economic data included March personal income and spending, which embeds the inflation gauge the Fed aims to keep near 2% over the longer run. The price index for personal consumption expenditures, or PCE, was in line with economists’ consensus estimate, rising 3.5% year-on-year.
Separately, the first estimate of US first-quarter GDP growth was 2.0%, lower than the 2.3% median forecast, while weekly initial jobless claims plunged to the lowest level in decades, a sign of labor-market strength. Treasuries held their advance after the figures, which had scant impact on expectations for Fed policy.
“It remains difficult to make a convincing case for rate cuts,” said Christophe Boucher, chief investment officer at ABN AMRO Investment Solutions, adding that the US economy remains resilient. “The Fed is likely to remain in a status quo for a large part of the year.”
For bond investors, the 5% yield level on the 30-year carries special importance, with some viewing it as a “line in the sand” for the market. While it was breached in 2023 and again in 2025, such moves have failed to last more than a few trading sessions.
A more persistent break above 5% would herald a trading range not seen in almost two decades.
(Adds month-end considerations, yen move and updates prices throughout.)
More stories like this are available on bloomberg.com
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