U.S. Treasury yields fell slightly on Tuesday as investors weighed escalating tensions in the Middle East and rising oil prices ahead of the Federal Reserve’s policy decision.
The yield on the benchmark 10-year Treasury note fell by almost two basis points to 4.202%, and the yield on the 30-year Treasury note fell by a fraction of a point to 4.854%. The yield on two-year government bonds also fell by almost 2 basis points to 3.665%.
One basis point is equivalent to 0.01%, and yield and price are inversely related.
Oil prices soared on Tuesday as questions remained over whether the US-led coalition would protect shipping through the Strait of Hormuz. After Iran’s attack on a tanker, shipping movement through the vital shipping lane has plummeted, causing the biggest disruption to global oil supplies in history.
International benchmark Brent crude rose 2% to about $102 a barrel, while U.S. West Texas Intermediate rose about 1% to about $95 a barrel.
The United States has asked its allies to send naval forces to protect tanker traffic through the strait. A new wave of attacks hit the UAE’s energy infrastructure this week, with another tanker recently rammed near a major waterway.
The incident comes after a drone attack on the world’s largest super-acid gas development sparked a fire in the United Arab Emirates’ (UAE) Fujairah oil industry and another tanker was rammed near the strategic Strait of Hormuz.
Investors are also keeping an eye on the Federal Reserve’s second policy meeting of the year, which is scheduled to conclude on Wednesday. Wall Street is broadly unanimous that the central bank will keep its benchmark lending rate between 3.50% and 3.75%.
“The Fed is in a bind,” said Brett Kenwell, U.S. investment analyst at eToro. “Slowing growth and a softening labor market would normally argue for easing monetary policy. However, inflation remains stubborn and high oil prices add further uncertainty to the outlook.”
Separately, President Donald Trump said on Monday that the United States had requested that a meeting scheduled in Beijing with Chinese President Xi Jinping be postponed for “about a month” because of the ongoing war with Iran.
Trump was expected to visit China at the end of March to meet with Xi.
But when asked in the Oval Office on Monday afternoon if the trip would still continue, Trump said, “I don’t know. We’re working on that.”
