10-year Treasury yield hovers near 4.3% after oil price gain, sticky inflation data

The 10-year Treasury yield moved lower on Thursday as oil prices rallied and investors digested a number of key data releases, which will shed further light on the evolving inflationary backdrop and the outlook for interest rates.

The yield on the 10-year U.S. Treasury note was down more than 2 basis points at 4.265%. Meanwhile, the yield on the 2-year Treasury note, which is typically more sensitive to short-term Federal Reserve interest rate decisions, fell more than 3 basis points to 3.758%.

The longer-dated 30-year Treasury note yield was more than 1 basis point lower at 4.871%.

One basis point equals 0.01%, or 1/100th of 1%, and yields and prices move inversely to one another.

Tuesday night's ceasefire agreement between the U.S. and Iran saw energy prices slide on Wednesday, with investors piling into U.S. Treasurys as they ramped up bets on the potential for Fed rate cuts. Tensions remain, however, as the ceasefire appears increasingly fragile, with oil prices trading higher on Thursday.

U.S. West Texas Intermediate futures increased 6%, trading back above $100 per barrel. International benchmark Brent crude futures were up 3% to trade above $98 per barrel.

Traders are now pricing in a near-25% probability of a rate cut by year-end, according to the CME's FedWatch tool, after odds on a rate cut jumped on Wednesday.

Investor attention also turned to the release of economic data Thursday. The personal consumption expenditure price index, which is the Fed's preferred inflation gauge, met expectations in February with a rise of 0.4% that month and a year-over-year gain of 2.8%. Excluding food and energy prices, core PCE was in line as well.

"The Fed's preferred inflation metric, the PCE index, has risen at an annualized pace of over 4% over the three months through February, with core PCE running above 4.5%. That's hot, and it cannot dismissed as temporary distortion driven solely by tariff-impacted goods. In other words, the Fed had an inflation problem even before the Middle-East crisis," said Sonu Varghese, chief macro strategist at Carson Group.

"This is starting to look like an 'Emperor Has No Clothes' moment: everyone can see inflation is too hot, but the Fed continues to avert its gaze," he continued.

To be sure, inflation before the Iran war broke out was still above the Fed's target of 2%.

Fed minutes from March's meeting showed policymakers remain open to future rate hikes should inflation continue to exceed 2%, while stressing the need to be nimble.

"The wildcard for bonds and the Fed is the energy and geopolitical shock," said Chris Maxey, chief market strategist at Wealthspire. "If energy-driven price pressures prove temporary and core inflation continues to cool, the Fed can hold rates steady or potentially ease. If the shock starts to bleed into broader inflation or expectations, the bar for cuts rises."

In the labor market, jobless claims for the week ended April 4 was higher than expected, however, coming in at 219,000 compared to the 210,000 that economists polled by Dow Jones were expecting.