TREASURIES-Yields rise as Iran war uncertainty keeps energy prices high

By Matt Tracy

WASHINGTON, March 27 - U.S. Treasury yields rose on Friday as uncertainty persisted around the Iran war and elevated energy prices.

The yield on 10-year Treasury notes US10YT=RR ticked up and were last up 3 basis points at 4.446%. They had earlier reached as high as 4.482%, their highest July.

Yields on 30-year Treasury bonds US30YT=RR also rose on Friday and at one point were just shy of 5%.

The selloff in Treasuries comes as energy prices remained elevated despite U.S. President Donald Trump on Thursday extending a pause on energy infrastructure strikes against Iran.

The Strait of Hormuz, through which a fifth of global energy supply flows, has remained closed throughout the war. Options markets have bet that Brent crude will reach an all-time high of over $150 per barrel by the end of April.

Elevated oil prices have raised concerns of persistent inflation, with U.S. rate futures beginning to price in the possibility of an interest-rate hike later this year.

Markets last priced in a 95.9% chance of no hike for the Fed's April meeting and a 30.7% chance of a hike by the end of the year.

Two-year U.S. Treasury yields US2YT=RR, a key indicator of Federal Reserve interest-rate expectations, were last down 3.3 basis points at 3.951%. They earlier climbed to 4.027%, their highest since June.

"The lingering threat of inflation is what is on investors' minds," said Sean Simko, head of fixed income portfolio management at SEI Investments.

"The longer the Iran conflict continues and carries on, the higher the probability of increased inflation and the expectation for higher yields," he said.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was last at 48.7 basis points.