(Bloomberg) -- Treasuries are on course for their longest losing streak in a month as growing tensions between the US and Iran fuel oil-driven inflation fears.
US 10-year yields rose for a third day, rising to 4.09%. Oil prices climbed Thursday to build on the previous day's surge, following a report that American military intervention in Iran could come sooner than expected.
"A prolonged, US‑led operation aimed at regime change would likely have a far larger and more persistent impact on energy markets, challenging the disinflation narrative and pushing curves to potentially reassess medium‑term inflation risk," said Evelyne Gomez-Liechti, a strategist at Mizuho International Plc.
Inflation concerns are already at the forefront of investors' minds after minutes of the Federal Reserve's Jan. 27-28 policy meeting revealed several officials suggested the central bank may need to raise interest rates if price growth remains stubbornly high.
Money markets have shaved wagers on Fed rate cuts this week, assigning around a 25% chance of a third reduction this year, down from 50% on Friday. The monetary-policy sensitive two-year Treasury yield rose to 3.47%.
There was minimal impact on Thursday from a set of economic indicators. Applications for unemployment benefits fell by the most since November in another sign that the labor market is holding up. That corroborates the views revealed in the minutes showing the vast majority of participants judged that downside risks to employment had moderated in recent months.
"We appear to be in a low hire, low fire environment which is unusual, but it also shows that the economy isn't falling off a cliff," said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
Later Thursday, the US will sell $9 billion of new 30-year Treasury Inflation-Protected Securities.
Investors will then turn their focus to economic data set to be released on Friday, including personal consumption expenditures, often called the Fed's preferred inflation measure.
"The big argument within the Fed is whether or not to proactively lower rates to support the job market, or to keep rates higher for longer in order to fight inflation," Zaccarelli said. "Tomorrow's report should provide another look at inflation and add to the debate."
--With assistance from Alice Gledhill.
(Updates to include economic data releases.)
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