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UST yields edged lower at the front-end last week, while the long end was broadly unchanged. The 2Y yield declined 3bps WoW to 4.18%, while the 10Y and 30Y yields remained stable at 4.56% and 5.06%, respectively. The move was driven by softer-than-expected CPI data, which reduced near-term expectations of Fed rate hikes.
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SGS yields edged higher last week, The 2Y and 5Y increased 6bps WoW to 1.63% and 1.82%, respectively. The 10Y rose 10bps WoW to 2.21% likely reflecting concerns that higher oil prices could lift domestic inflation.
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Softer inflation has reduced the case for a July Fed hike, while resilience of the US economy gives the Fed room to remain on hold. The renewed US–Iran conflict has reintroduced upside risks to the inflation outlook. At current oil prices, the renewed shock is unlikely to trigger a July hike. However, sustained prices near current levels could reverse part of June’s gasoline-driven disinflation and keep the Fed cautious heading into September. Against this backdrop, we expect UST yields to remain volatile with a modest steepening bias. Lower near-term possibility of a rate hike should support the 2Y yield. The 10Y and 30Y yields remain more exposed to higher oil prices, inflation and term-premium pressure, leaving the long end broadly range-bound with a mild upward bias. Domestically, Singapore’s June headline inflation is expected to rise to 2.1% YoY from 1.8% in May, driven mainly by higher private transport and energy costs. An in-line print should keep SGS yields broadly range-bound, while an upside surprise would likely renew upward pressure on the 5Y–10Y.
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