U.S. Treasury yields extend decline as Iran de-escalation hopes pressure oil and global bonds

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Treasury yields decline on Iran hopes

Highlights

10-year Treasury yield drops over 2 basis points to 4.4434% as de-escalation talks between the U.S. and Iran boost bond demand.
U.S. crude oil futures fall 4.5% to $83.79 and Brent drops 4.3% to $86.47 on hopes for a Middle East resolution.
May producer price index rises 1.1% month-on-month, pushing the annual rate to 6.5%, exceeding the expected 0.7% increase.

Middle East de-escalation drives bond rally

As reported by CNBC, U.S. Treasurys retreat further on Friday as traders track the growing prospect of a resolution to the Middle East war, extending the previous session's sharp move lower in yields.

The 10-year Treasury note yield, a benchmark for mortgages, auto loans and credit card debt, is down more than 2 basis points at 4.4434%. The 2-year Treasury yield, which typically moves with expectations for short-term Federal Reserve policy, falls more than 2 basis points to 4.0473%, while the 30-year Treasury yield drops 1 basis point to 4.9414%. Bond yields and prices move inversely to each other.

Iran's state-run Mehr News Agency reports details of a draft 14-point memorandum of understanding between the U.S. and Iran. The proposed agreement includes reopening the Strait of Hormuz with Iranian agreements, lifting oil sanctions and ending hostilities across the region, including Lebanon. The development follows comments from President Donald Trump on Thursday that Washington has made a settlement, subject to finalization of documents.

Borrowing costs already fell sharply on Thursday after Trump called off plans for fresh strikes against Iran. At that point, the 10-year Treasury yield fell as much as 8 basis points, with the 2-year and 30-year yields also moving firmly lower.

Oil prices and inflation data shape market response

The prospect of a peace deal also pushes energy prices sharply lower and sends global bond yields tumbling. U.S. crude oil futures fall 4.5% to $83.79, while Brent crude drops 4.3% to $86.47.

Outside the U.S., yields on 10-year UK government bonds, or gilts, are more than 8 basis points lower at 4.823%. The yield on the 10-year German bund, a key gauge for euro zone debt markets, slips more than 5 basis points to 2.9686%.

The move lower in Treasury yields comes as investors also digest a stronger-than-expected rise in May's producer price index. Bureau of Labor Statistics data show the index rises a seasonally adjusted 1.1% on the month, taking the annual rate to 6.5%, above the 0.7% monthly gain expected by economists polled by Dow Jones.

In our earlier coverage of oil’s slide after Trump called off planned strikes on Iran, we noted that traders quickly pared back the geopolitical risk premium as hopes for renewed diplomacy grew. The article also stressed that the Strait of Hormuz remained the key unresolved threat, with conflicting claims about shipping access keeping the outlook fragile despite the pullback in crude.

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