Treasuries Gain in Catch-Up Trade as Trump Sees Progress on Iran

US Treasury yields declined across the curve as trading resumed after a holiday, with investors reacting to optimism about a potential US-Iran deal. The two-year yield dropped six basis points to 4.05%, the 10-year fell six basis points to 4.50%, and the 30-year yield declined four basis points to 5.03%. President Donald Trump stated this week that negotiations with Iran over an interim deal to extend their ceasefire and reopen the Strait of Hormuz were proceeding well, contributing to a drop in Brent crude prices below $100 per barrel. However, tensions flared as US and Israeli jets reportedly struck Iranian vessels in the Strait of Hormuz, underscoring the fragile truce. Analysts noted that reduced Middle East escalation and deal optimism lowered oil prices and inflation expectations, reducing pressure for tighter monetary policy. This shift supported Treasury rallies, as traders adjusted expectations for Federal Reserve rate hikes. Earlier this month, yields surged due to inflation spikes tied to the Iran conflict, prompting bets that the Fed would maintain higher rates longer under new chairman Kevin Warsh. Bloomberg strategists observed that global yields had peaked as economic damage from the Strait of Hormuz closure outweighed initial inflationary pressures. Longer-dated bonds, offering near two-decade high yields, were positioned to rally further. Markets now anticipate a Fed rate hike by March 2027 instead of December 2026, following recent developments. The spread between 30-year and five-year bond yields rebounded from a May 2025 low as hawkish Fed expectations eased. Abbas Keshvani of RBC Capital Markets suggested progress in US-Iran talks could lead to further declines in energy prices, inflation, and yields. BlackRock’s Navin Saigal argued the Fed may have reason to cut rather than hike rates, citing potential labor market pressures. His remarks contrasted with investor bets that Warsh would prioritize inflation control over Trump’s push for lower rates. The article reflects a shift in market sentiment toward easing monetary policy amid geopolitical progress and reduced inflation risks.