SYDNEY, April 2 (Reuters) - Treasury yields were jerked
higher in Asia on Thursday as dashed hopes for an early end to
the Gulf war sent oil prices flying and fanned fears the
resulting inflation would close the door to any prospect of
easier monetary policy.
Yields on 10-year notes climbed 5 basis points
to 4.376% after President Donald Trump offered little clarity on
when the conflict might wind down and, crucially, waved off any
responsibility for reopening the vital Strait of Hormuz.
A resulting 6% jump in Brent futures saw the market
take out another 6 basis points of Federal Reserve rate cuts
for this year. No easing is now expected, compared to 50
basis points of cuts before the war began.
"The only thing that really matters is whether the Strait of
Hormuz will open soon," said Prashant Newnaha, a senior rates
strategist at TD Securities in Singapore. "Trump's speech
doesn't imply this is likely to happen as quickly as the markets
were expecting."
"Further, the risk of additional upstream counterattacks
implies the strait is likely to be shut for at least another
month and beyond that is anybody's guess."
The near closure of the strait has thrown a spanner in the
works of global supply chains for a host of products from
petrol, to gas, jet fuel, fertilisers, chemicals, aluminum,
pharmaceuticals and even cement.
The inflationary wave is already being felt with gasoline
topping $4 a gallon in some U.S. states and the wider effect
still to be felt.
A closely watched survey of manufacturing out on Wednesday
showed its measure of prices paid had shot up 19 points in just
two months to reach levels typically consistent with annual
inflation running at 4%.
The jump in inflation will make it harder for the Fed to
countenance a cut in rates even as rising energy costs act as a
tax on consumers, and a drag on domestic demand.
That risk saw two-year yields rise 5 basis
points on Thursday to 3.856%, leaving them 48 basis points
higher than when the conflict started.
Much now depends on the March payrolls report where jobs are
expected to bounce by 60,000 after February's dire reading.
"A rebound in job creation will likely see market pricing
shift materially in favour of a Fed hike, or two, as has been
the case elsewhere across the developed world," wrote analysts
at Westpac in a note.
(Reporting by Wayne Cole; Editing by Mrigank Dhaniwala)