Treasury Yields Edge Down

The yield on the US 10-year Treasury note fell to 4.48% on Tuesday as markets reacted to signs that a US–Iran deal could move closer to a lasting agreement. Both sides reportedly agreed on a roadmap toward a potential peace deal within 60 days, while the US issued a 60-day license allowing Tehran to sell oil on international markets. As a result, oil prices have declined, offering some relief on inflation pressures, although price growth remains elevated. The upcoming PCE inflation report, the Fed’s preferred gauge, will be closely watched this week. A hawkish tone from the Fed last week has prompted investors to increase bets on further rate hikes this year. Markets are currently pricing the probability of a rate increase in September at around 68%, up from 29% last week.

The yield on the US 10-year Treasury note hovered around 4.5% on Tuesday after climbing in the previous session, as investors monitored US-Iran peace talks while continuing to gauge the outlook for Federal Reserve interest rate hikes this year. In a key development, Washington granted Tehran a 60-day license to sell oil on international markets, boosting expectations of a faster recovery in global supply. Meanwhile, markets remain positioned for tighter monetary policy after the Fed struck a hawkish tone last week and raised its inflation projections. Both Deutsche Bank and BofA Global Research have revised their forecasts to include a rate hike in September. Investors are now looking ahead to this week’s PCE report, which contains the Fed’s preferred inflation measure and is expected to provide fresh clues about underlying price pressures.

The yield on the US 10-year Treasury note rose to 4.5% on Monday, its highest level in about two weeks, while the more policy-sensitive 2-year Treasury yield climbed above 4.2%, reaching its highest level since February 2025. Investors returned from the long weekend focused on the outlook for monetary policy and inflation, despite signs of progress in US-Iran negotiations that contributed to another decline in oil prices. Markets are currently pricing in at least one 25bps Federal Reserve rate hike by year-end, with the probability of such a move as early as September standing at around 50%. Attention now turns to Thursday's PCE report, which includes the Fed's preferred inflation gauge and is expected to provide fresh insight into underlying price pressures and the likely path of interest rates.