TREASURIES-US bonds climb on growth fears as war grinds into fifth week

By Gertrude Chavez-Dreyfuss

NEW YORK, March 30 (Reuters) - U.S. Treasuries rose across the curve on Monday as mounting global growth concerns eclipsed inflation worries, with investors increasingly uneasy about a war entering its fifth week with no clear path to resolution.

The benchmark U.S. 10-year yield, which falls when prices rise, dropped for the first time in three days, down 7.9 basis points at 4.36% US10YT=RR, on track for its largest one-day fall since October 10. For the month, however, 10-year yields have advanced nearly 40 bps, their largest monthly rise since October 2024.

On the shorter end of the curve, U.S. two-year yields, which reflect interest rate expectations, were down 6.3 bps to 3.853% US2YT=RR. For March, though, two-year yields have climbed 47 bps, the biggest monthly increase since October 2024 as well.

IRAN DEFIES TRUMP'S DEMAND TO REOPEN STRAIT

U.S. President Donald Trump warned Iran on Monday to open the Strait of Hormuz, a waterway used for shipping a fifth of global oil and liquefied natural gas, or risk U.S. attacks on its energy infrastructure.

But Iran remained defiant. Iranian Foreign Ministry spokesperson Esmaeil Baghaei told a press conference: "Our position is clear. We are under military aggression. Therefore, all our efforts and strength are focused on defending ourselves."

"The common theme today is more about higher energy prices and their impact on economic growth going forward. And there's a pretty pessimistic view on that, which is putting downward pressure on yields right after we've had a pretty long stretch of upward pressure," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

"The theme before was higher energy prices and their impact on inflation in general, which pushed up yields across the curve. At that point, investors were focused on still a pretty decent economy within an environment of higher inflation and now higher interest rates. That has now shifted."

A sharp rally in oil prices — and the prospect of broader global inflation pressures — drove a broad surge in yields in the last few weeks. U.S. crude futures CLc1 have spiked more than 50% since the beginning of March, on pace for the biggest monthly gain since May 2020, at the height of the pandemic.

U.S. 30-year yields dropped 6.9 bps to 4.912% US30YT=RR, on pace for the biggest daily pullback since February 12. But on a monthly basis, the long bond yield has risen 28 bps, the largest increase since December 2024.

The yield curve was largely unchanged from Friday, with the gap between two-year and 10-year yields at 51.6 bps US2US10=TWEB. Earlier in the global session, the curve steepened to 53.10 bps, the widest spread since March 17. For now, long-term interest rates are falling faster than short-term rates, as inflation expectations diminish slightly.

U.S. rate futures on Monday have priced out rate cuts for 2026 and reduced rate hike expectations this year as well. For 2026, rate futures are pricing in just 10 bps in hikes, down from 15 bps late last week.