Treasuries Gain Amid Oil Price Decline as Iran Nuclear Deal Negotiations Escalate

US Treasuries Advance as Trump's Comments Ease Tensions with Iran

US Treasuries advanced on Monday after President Donald Trump indicated that Iranian officials were seeking an agreement to end the war, leading to a pullback in oil prices and a decline in the dollar. This move pushed yields lower by one to two basis points across maturities, with those on the benchmark 10-year down to 4.30%. Earlier in the session, yields had reached 4.36%, tracking European rates higher, after negotiations between the US and Iran collapsed over the weekend and Trump said he would blockade the Strait of Hormuz.

The bond market remains cautious in its expectations of a Federal Reserve rate cut this year, despite the recent disruption around the Strait of Hormuz and last week's data showing higher energy costs feeding into US inflation. US money-market traders are still betting on the Fed resuming interest rate cuts by year-end.

| Comparison of Benchmark 10-Year Treasury Yields | | --- | --- | | Date | Yield | | February 28 (before US attack on Iran) | 1.86% | | March 10 (last seen) | 4.10% | | Monday (after Trump's comments) | 4.30% |

Since the war began at the end of February, Treasury yields across maturities have been broadly tracking the direction of oil prices. In Monday's afternoon trading in New York, yields declined as oil prices retreated from intraday highs. US benchmark West Texas Intermediate crude oil futures settled near $99 a barrel, 2.6% higher on the day, versus session highs above $105.

The risk that higher fuel costs will drive up inflation, delaying Fed rate cuts, is at the forefront of investors' minds in the $31 trillion Treasuries complex. Late last week, consumer prices data for March showed the biggest monthly increase since 2022. The Fed lowered rates three times last year, then paused amid indications of stabilization in the labor market. Since the US attacked Iran on February 28, traders have recalibrated their expectations for the next move, going from pricing in more than two reductions to briefly betting on a hike. Now, swaps linked to the Fed meeting in December price in about seven basis points of easing, or about 28% of a quarter-point cut. They fully price in a cut during the second half of 2027.

At the same time, flows in Treasury options featured a large buyer of May contracts that would benefit should 10-year yields decline to around 4.1%, a level last seen on March 10. Market reaction in rates has been very contained, with last week's ceasefire agreement limiting the rise in yields, according to Pooja Kumra, senior UK and European rates strategist at Toronto Dominion Bank.