Treasury yields edge lower as investors hope for U.S.-Iran deal

Treasury yields edged lower on Monday as investors remained optimistic that a resolution for the conflict in the Middle East would be achieved, even after the breakdown of talks between Iran and the U.S.

The yield on the 10-year U.S. Treasury note — the benchmark for government borrowing — was lower by more than 1 basis point at 4.301%.

The 2-year Treasury note yield, more sensitive to short-term Federal Reserve interest rate moves, fell 2 basis points to 3.781%. The longer-dated 30-year Treasury bond yield was down more than 1 basis point at 4.902%.

One basis point is equal to 0.01%, and yields and prices move in opposite directions.

Yields were higher earlier in the day but then reversed course after President Donald Trump said on Monday that the U.S. has "been called by the other side" and that they want to "make a deal very badly."

Investors also reacted to the surging price of crude oil — which will filter down to higher gasoline costs for drivers and diesel fuel for U.S. truckers — and the start of a U.S. blockade of Iranian ports after talks between Washington and Tehran over the weekend failed to produce an agreement to end the Middle East war.

The fixed income market continued to price in the implications of Friday's inflation report for March, which showed core prices rising less than feared, despite the takeoff in energy prices since the start of the Iran war.

On a headline basis, the most recent U.S. consumer price index reading came in at its highest level in two years, stoking concerns that the energy price shock will spread through the economy and lift costs for goods and services.

"Markets are trying very hard to look through this," Rob Haworth, senior investment strategy director at U.S. Bank Asset Management, said of the effect of energy prices on inflation. "The 10-year Treasury between 4% and 4.35% is probably okay. If we start spending a lot of time above 4.5%, that tells us there's a lot of inflation worry in the market."

The housing market showed signs of weakness Monday. Existing home sales in March were worse than expected, dropping to their lowest level since last June.