US Treasury yields declined sharply yesterday as investors positioned themselves ahead of the critical Personal Consumption Expenditures (PCE) price index release later this week. The sell-off capped a volatile week dominated by two major factors: persistent hawkish rhetoric from Federal Reserve officials and escalating geopolitical tensions between the United States and Iran. PCE data is widely regarded as the Fed's preferred inflation gauge, making its outcome crucial for determining the central bank's future policy trajectory. Traders anticipate the report could provide the definitive signal on whether the Fed will maintain its aggressive rate-hiking stance or signal a potential pause. Iran tensions have also significantly impacted energy markets, driving crude oil prices sharply higher and adding inflationary pressure to the economy.

This confluence of factors created a risk-off environment in fixed income, pushing longer-dated Treasuries lower as investors sought safety and priced in potential rate hikes. The immediate focus now shifts entirely to Thursday's PCE report, which will likely dictate the next move in Treasury markets and bond yields.