Oil Relief Pushes Bond Yields Lower
U.S. Treasury yields fell Friday as crude prices tumbled following a news report that Pakistan is seeking a way to revive negotiations between the U.S. and Iran.
On Thursday it had climbed above 4.7%, a level not seen since Jan. 15, 2025, before President Donald Trump's second term started.
On Friday, U.S. Treasury yields declined after crude prices dropped on a news report that Pakistan is trying to restart U.S.-Iran negotiations. The report indicated that Pakistan's foreign minister held discussions with Chinese officials last week on this new initiative.
Brent crude futures dropped 4% to approximately $96 a barrel, and U.S. West Texas Intermediate futures declined 3% to about $89.
Get the market news that matters in a five-minute read with Market Briefs, our free daily newsletter
Geopolitical Whiplash Complicates the Picture
Oil prices rebounded from their session lows following a Friday report from The New York Times that President Donald Trump was consulting with top advisors and senior cabinet members to determine whether the U.S. should escalate attacks on Iran.
This came after the Middle East conflict expanded to include the Red Sea earlier this week. Yemen's Houthi rebels menaced oil tankers at that time. Trump had told Axios on Thursday that he would soon decide on launching a "massive attack" on Iran.
"I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it," the president said.
American forces have already struck Iranian targets repeatedly in recent days. Central Command conducted its 13th consecutive night of strikes overnight.
With the Federal Reserve preparing for its upcoming policy meeting, Sage Advisory co-CIO Thomas Urano remarked that the central bank's difficulty "is not simply forecasting inflation but assessing how long energy-related disruptions may persist."
"Policymakers have limited ability to offset supply-driven price shocks, and the uncertainty surrounding Middle East developments reduces confidence in any projected rate path. Until energy flows through the region become more predictable, geopolitical headlines will continue to influence inflation expectations, bond yields, and Federal Reserve policy decisions," the co-CIO said.
Earlier in the day, yields fell after the S&P Global Flash U.S. purchasing managers index dropped to 53.8 in July, falling short of the 54.4 that economists in a Dow Jones survey had predicted.
The decline in yields also reflects a classic market reaction: falling oil prices ease inflation fears and reduce the urgency for the Federal Reserve to keep rates high. However, the whipsaw in yields driven by conflicting geopolitical news highlights how sensitive bond markets have become to any development in the Middle East. The Fed's next policy meeting will be closely watched for clues on how policymakers weigh these supply-side shocks against slowing domestic activity.
Join Market Briefs, our free daily newsletter, for a quick daily rundown of the markets
