crude oil rally clouds inflation outlook

The yield on the 10-year U.S. Treasury note — the benchmark for government borrowing — was higher by almost 2 basis points, at 4.333%.

The 2-year Treasury note yield, more sensitive to short-term Federal Reserve interest rate moves, rose 1.3 basis points to 3.814%. The longer-dated 30-year Treasury bond yield was also up 1 basis point, to at 4.923%.

One basis point is equal to 0.01%, and yields and prices move in opposite directions.

Investors reacted to the surging price of crude oil — which will filter down to higher gasoline costs for drivers and diesel fuel for U.S. truckers — and the start of a U.S. blockade of Iranian ports after talks between Washington and Tehran over the weekend failed to produce an agreement to end the Middle East war.

The fixed income market also continued to price in the implications of Friday’s inflation report for March, which showed core prices rising less than feared, despite the takeoff in energy prices since the start of the Iran war.

On a headline basis, the most recent U.S. consumer price index reading came in at its highest level in two years, stoking concerns that the energy price shock will spread through the economy and lift costs for goods and services.

“Markets are trying very hard to look through this,” Rob Haworth, senior investment strategy director at U.S. Bank Asset Management, said about the Iran war’s impact. “The 10-year Treasury between 4% and 4.35% is probably okay. If we start spending a lot of time above 4.5%, that tells us there’s a lot of inflation worry in the market.”

The housing market showed signs of weakness Monday. Existing home sales in March were worse than expected, dropping to their lowest level since last June.