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Treasury yields hold higher after Trump says he will withdraw US from Iran deal

  • Fed Chair Jerome Powell said that the U.S. central bank's interest rate hikes may not end up having as great of a risk to markets as feared.
  • Trump announced he was withdrawing the U.S. from the Iran nuclear deal, which lifted sanctions on the Middle Eastern nation, in return for the country to pull back on its nuclear ambitions.
  • The Treasury Department auctioned $31 billion in three-year notes at a high yield of 2.664 percent.

U.S. government debt yields ticked higher Tuesday as investors digested the first of three major Treasury auctions this week and an announcement by President Donald Trump on U.S. commitment to the Iran nuclear deal.

The yield on the benchmark 10-year Treasury note was higher at around 2.967 percent at 2:39 p.m. ET, while the yield on the 30-year Treasury bond was higher at 3.121 percent. Bond yields move inversely to prices.

Trump announced he was withdrawing the U.S. from the Iran nuclear deal, which lifted sanctions on the Middle Eastern nation, in return for the country to pull back on its nuclear ambitions. The president had often threatened to pull the U.S. from the Iran deal in the past, calling it "the worst deal ever."

In spite of the U.S. incumbent's threats to withdraw, President Hassan Rouhani stated that Iran had a plan to counter any move made by Trump when it comes to the deal, Reuters reported. Though Trump is widely expected to withdraw, Rouhani said on Tuesday that Iran would continue to seek "constructive relations with the world," despite potential sanctions.

An uncompromising exit by the Trump administration could also affect oil prices given Iran role as a leading crude exporter, and that could spell uncertainty for Treasurys.

"The higher price of oil will strain the commercial accounts of large oil importers in the emerging markets while helping producers," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group. "It will spur inflation almost everywhere, and thus perhaps lift inflation breakevens. In the U.S., that could be the catalyst for 10-year yields getting to 3.25 percent."

Symbol
Yield
 
Change
%Change
US 3-MO
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US 1-YR
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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Ballooning bond supply also continues to play a major role in fixed income markets.

The Treasury Department auctioned $31 billion in three-year notes at a high yield of 2.664 percent. The bid-to-cover ratio, an indicator of demand, was 2.76. Indirect bidders, which include major central banks, were awarded 45.6 percent. Direct bidders, which includes domestic money managers, bought 12.3 percent.

It will also auction $25 billion in 10-year notes Wednesday and $17 billion in 30-year bonds on Thursday.

The Treasury Department has been under increased pressure to fund the federal government's yawning budget deficit, opting to increase the size of its debt auctions and buoying rates as a result.

In the central banking space, Fed Chair Jerome Powell has delivered remarks in Zurich Tuesday. Speaking at the Swiss National Bank and International Monetary Fund's High Level Conference on the international monetary system, Powell said that the U.S. central bank's interest rate hikes may not end up having as great of a risk on emerging market economies and stock markets as many had initially thought.

The head of the U.S. Federal Reserve went on to add that the central bank would, however, continue to communicate its policy strategy as "clearly and transparently as possible to help align expectations and avoid market disruptions."

In economic data, job openings hit a record in March, challenging the argument that the labor market is near capacity.

The level hit 6.6 million, according to the Job Openings and Labor Turnover Survey released Tuesday that, even though lagging a month, is closely watched for signs of market slack. Openings in total rose by 472,000 over February.

The Labor Department will report on producer prices Wednesday, as well as the more heavily scrutinized consumer-price index on Thursday.

On average, economists surveyed by Reuters expect that so-called core CPI — which excludes volatile food and energy costs — rose 0.2 percent in April from the previous month.

Rising inflation is a threat to Treasury prices because it erodes the purchasing power of their fixed payments, putting upward pressure on rates.