Bonds

Treasury yields turn higher after oil prices give up gains

Treasury yields cut losses and turned higher on Monday despite the escalating geopolitical tensions in the Middle East.

Treasurys

The yield on the benchmark 10-year Treasury note, which moves inversely to price, was up slightly at around 1.79%. The benchmark yield was lower at 1.77% at one point Monday. The yield on the 30-year Treasury bond rose one basis point to 2.26%.

"Focus will remain firmly on the consequences of mounting tensions between the US and Iran," Ian Lyngen, BMO's head of U.S. rates, said in a note. If there is a more material pick up in aggression, "a larger flight-to-quality bid should be expected to exert sustained downward pressure on yields," he said.

Crude turned lower on Monday, giving up earlier gains, despite ongoing fears of Iran's retaliation against U.S. interests. Earlier in the session oil prices had been up more than 2%.

President Donald Trump threatened to impose sanctions against Iraq on Sunday, shortly after Baghdad called for American and foreign troops to leave the country.

Last week, Iran's General Qasem Soleimani, who led a special forces unit of the Islamic Republic's elite Revolutionary Guards, was killed by a U.S. airstrike at the Baghdad International Airport.

It has ratcheted up already-high tensions between the U.S. and Iran, with market participants increasingly concerned about the prospect of retaliatory action.

Trump has warned Iran that the U.S. would strike back if Tehran's military forces attacked any American person or target, saying Washington could do so "perhaps in a disproportionate manner."

The U.S. Treasury is set to auction $42 billion in 13-week bills and $36 billion in 26-week bills on Monday.