U.S. Treasury yields moved lower on Monday after crude oil prices tumbled following reports that the United States and Iran had paused attacks, a development that traders interpreted as easing geopolitical risk ahead of a Federal Reserve interest-rate decision expected later in the week.
A senior Iranian official told Reuters on Sunday that Iran would halt its attacks provided the United States did the same. That statement came after Washington paused its bombing campaign, which had followed two weeks of strikes.
Despite the pause, Saudi Arabia, Jordan and Iraq reported drone attacks on Monday, suggesting continued regional tension as Tehran appeared to test the resolve behind President Donald Trump’s most recent approach.
On the Treasury market, the yield on the U.S. 10-year note declined 2 basis points to 4.647% after touching a low of 4.626%. Yields had been climbing in recent days as renewed strikes earlier in the Iran conflict reversed lower oil prices and raised concerns about inflation, which in turn lifted expectations that the Federal Reserve might raise interest rates.
Benchmark oil contracts dropped sharply. U.S. crude fell 6.08% to $83.90 a barrel. Brent crude slipped 6.6% to $90.34 a barrel, trading near one-week lows after peaking at about $102 just last week, a two-month high. Overall oil benchmarks were down more than 7% as traders priced in the possibility of a diplomatic path that could lessen pressure on shipping through the Strait of Hormuz.
The 10-year yield has risen roughly 23 basis points so far this month, putting it on pace for its largest monthly increase since March, when the Iran conflict began.
With a Fed decision looming, markets are balancing the immediate reaction to reduced geopolitical risk against recent inflation concerns that had pushed yields higher. The sudden swings in oil and bond markets reflect how developments in the Middle East continue to feed through to expectations for inflation and central-bank policy.
Investors will be watching both the official guidance from policymakers later in the week and any further developments in the region that could alter oil supplies or shipping risks, which in turn would affect interest-rate expectations and broader market sentiment.