The yield on 10-year US Treasury bonds was seen hovering around 4.6% on Tuesday after an aggressive surge over the past few weeks began to show signs of stabilizing.
The move came as the market began to see the potential for a postponement of war between the United States and Iran, which would help ease concerns about global inflation and pressure on rising interest rates.
Market sentiment changed after Donald Trump announced that he was postponing planned attacks on Iran following requests from Saudi Arabia, Qatar and the United Arab Emirates.
Gulf countries reportedly believe that negotiations with Tehran still have a chance to reach an agreement acceptable to Washington.
Although geopolitical tensions appear to have eased slightly, US bond yields still remain close to their highest levels in more than a year.
This situation is due to rising global oil prices that continue to trigger inflation concerns, especially when the Middle East conflict is still far from over.
The market is now starting to assess the possibility of the US Federal Reserve (Fed) keeping interest rates high for longer than expected.
In fact, some investors have also begun to open up the possibility that the Fed will raise interest rates again before the end of the year if inflationary pressures continue to rise.
The rise in US bond yields usually reflects expectations that interest rates will remain high. In the current situation, investors are seen to reject expectations of interest rate cuts in the near future because the US economy is still showing resilience, while inflation has not fully stabilized to the Fed's target.
In addition, the persistently high oil price is also a major factor worrying the market. If the conflict in the Middle East escalates again and disrupts key trade routes such as the Strait of Hormuz, global energy costs have the potential to rise higher and put additional pressure on world inflation.
The market is currently also focusing on the minutes of the latest Federal Open Market Committee (FOMC) meeting to get a clearer indication of the direction of the Fed's monetary policy.
Investors want to see the extent of Fed officials' concern about inflation and whether there are new signals regarding a potential interest rate hike.
At the same time, the upcoming US PMI data is also the main focus of the market because it can provide an updated picture of the strength of economic activity and the US manufacturing sector.
If economic data continues to be strong, expectations of higher interest rates are expected to continue to support rising US bond yields and strengthen the US dollar in the near term.
