Yields Edge Lower Despite Iran Worries and Global Sell-Off

US Treasury yields declined on Tuesday despite concerns about Iran and a broader global bond sell-off. The yield curve, which measures the difference between short-term and long-term borrowing costs, edged lower after two consecutive days of increases. The change in sentiment came during a week with limited economic data or catalysts to drive market direction.

Analysts pointed out that economic data is currently light, while malaise (a feeling of listlessness or dissatisfaction) is high, making even small events significant. US President Donald Trump stated on Tuesday that no talks were taking place with Iran and none were scheduled, contradicting an Iranian assertion that the Strait of Hormuz was closed to shipping.

The Federal Reserve reported a 0.1 percentage point decline in July growth for US industrial production to 0.2%, missing economists' expectations due to decreased consumer goods production. Markets will look to the Federal Reserve's release of minutes from its most recent monetary policy-setting meeting on Wednesday for clues about policymakers' views on interest rates.

The yield on the benchmark 10-year Treasury note fell 1.6 basis points to 4.708%, while the 30-year bond yield dropped 2.6 basis points to 5.284%. The closely watched part of the US Treasury yield curve measuring the gap between two- and 10-year notes was at a positive 52.9 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 0.5 basis points to 4.177%. The breakeven rate on five-year Treasury Inflation-Protected Securities (TIPS) was last at 2.277%, indicating market expectations of about 2.3% annual inflation over the next decade.