Early Washington-Tehran peace accord sends U.S. Treasury yields lower

U.S. Treasury yields fell broadly on Monday after news of a preliminary peace agreement between Washington and Tehran prompted investors to reassess the outlook for energy prices, inflation and Federal Reserve policy. The 10-year Treasury yield, a key benchmark for U.S. government borrowing costs, dropped more than 4 basis points to 4.441%. The policy-sensitive 2-year yield slid more than 5 basis points to 4.035%. The 30-year yield eased by 3 basis points to 4.942%. Markets often price geopolitical shifts through the lens of oil. After the agreement was announced, investors marked down the Middle East risk premium, adjusting positioning in safe-haven assets and interest-rate expectations. Oil prices fell sharply following comments from Donald Trump that he had approved the reopening of the Strait of Hormuz, a critical shipping route. On Sunday, U.S. crude declined 5%. The pullback in energy prices is widely seen as reducing near-term inflation pressure, a key driver behind the drop in Treasury yields. Because yields move inversely to bond prices, lower yields indicate rising bond prices. Attention now turns to this week's U.S. housing and retail sales reports and the Federal Reserve's policy meeting. While tensions between Washington and Iran appear to be easing, clashes have continued between Israel and Lebanon's Iran-backed Hezbollah, underscoring how fragile any regional ceasefire could be. CME's FedWatch tool shows fed funds futures pricing in a greater than 98% chance the Fed holds rates steady at this meeting. Michael Landsberg, Chief Investment Officer at Landsberg Bennett Private Wealth Management, said that despite a recent uptick in inflation, markets are not expecting a policy shift this week and will instead focus on the Fed's post-meeting messaging, especially signals delivered during the press conference.