* ISM non-manufacturing index hits highest since July 2022
* ADP employment tops expectations
* Yields higher with crude prices volatile
NEW YORK, – U.S. Treasury yields climbed for a third straight session on Wednesday as investors weighed the potential risk of rising inflation and the path of monetary policy after the war in Iran elevated oil prices. The U.S.–Iran war widened after a U.S. strike hit an Iranian warship off Sri Lanka, and NATO air defenses destroyed an Iranian ballistic missile that had been fired towards Turkey. Shipping through the Strait of Hormuz was incapacitated for a fifth day, choking off vital Middle East oil and gas flows. U.S. crude rose 0.27% to $74.76 a barrel and Brent fell to $81.38 per barrel, down 0.02% on the day, in a choppy trading session after a report that Iranian operatives sought talks with the U.S. to end the conflict. Crude prices have risen roughly 12% since the weekend attacks on Iran and remain near levels not seen since June.
The yield on the benchmark U.S. 10-year Treasury note rose 2.2 basis points to 4.079% and was on pace for its first three-day streak of gains since mid-January.
“The long end is somewhat anchored around that 4% to 4.10% range and unlikely to have material impacts that will push it outside of that range,” said Bill Northey, senior investment director at U.S. Bank Wealth Management in Billings, Montana.
“The things that we would watch for are if rates move lower, it’s probably not a positive perspective for the broad economy. If they move materially higher, it’s likely an unanchoring of inflation expectations based on things that are happening in the hydrocarbon market.” Yields extended gains after the Institute for Supply Management said its non-manufacturing purchasing managers index increased to 56.1 last month, the highest reading since July 2022, up from 53.8 in January and well above the 53.5 estimate of economists polled by Reuters. In other data, the ADP national employment report showed private employment rose by 63,000 jobs last month, topping the 50,000 forecast and the largest gain since July 2025. That followed a downwardly revised 11,000 increase in January. The yield on the 30-year bond edged up 1.2 basis points to 4.715%. Expectations for a near-term cut by the Federal Reserve have been dented by the rise in oil prices, with the June meeting now showing a 35.5% chance for a cut of at least 25 basis points, according to CME’s FedWatch Tool. Markets had been pricing in more than a 50% chance of a cut in recent weeks for the June meeting.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 54.2 basis points. Fed officials have recently expressed views that it will take time to assess the impact of the Iran conflict on monetary policy decisions, although Governor Stephen Miran said on Bloomberg TV on Wednesday that it had not changed the need for interest rate cuts.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, advanced 3.5 basis points to 3.535%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities was last at 2.500% after closing at 2.51% on Tuesday, its highest since February 9.
The 10-year TIPS breakeven rate was last at 2.27%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
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