Oil prices keep driving UST and muni losses

Muni yields moved higher on Monday, as U.S. Treasuries cheapened and equities ended lower as geopolitical tensions in the Middle East reignited.

Muni yields cheapened by up to three basis points, depending on the scale. UST yields rose by up to six basis points, with the largest losses on the front end. Those losses pushed the two-, three- and five-year UST to yearly highs.

U.S. tensions with Iran continued to deteriorate, as both countries launched strikes over the weekend and into Monday.

Furthermore, President Donald Trump restarted the blockade of Iranian ports and coastal areas and proposed a 20% toll on cargo through the Strait of Hormuz.

Reopening the conflict last week sent oil prices above $80 a barrel, Chris Brigati wrote for SWBC; rates stabilized, then shot up again upon Trump's announcement. Brigati expects oil prices to "maintain a geopolitical risk premium" until investors gain clarity around the duration and scope of the Iran conflict. UST rates have reflected this risk assessment.

"Once again, the market appears to be embracing a 'higher-for-longer' interest rate environment as persistent inflation concerns continue to outweigh hopes for meaningful monetary easing," Brigati said.