US Treasury yields fall as rate-hike bets retreat

US Treasury yields fell across the board Monday after a ceasefire agreement between the United States and Iran sent international oil prices sharply lower, easing inflation pressures that had fueled expectations of a Federal Reserve rate hike.

According to Bloomberg, the 2-year Treasury yield fell 3.8 basis points from the previous session to 4.024 percent during morning hours Korean Standard Time. The benchmark 10-year yield dropped 3.7 basis points to 4.424 percent, while the 30-year yield slipped 3.1 basis points to 4.924 percent — its lowest level since May 7.

Short-term maturities, which are more sensitive to rate movements, led the broad decline in yields.

Markets now price in roughly a 60 percent chance the Fed will raise rates by 25 basis points by December, down sharply from about 80 percent on June 12.

A 4 percent drop in Brent crude prices sparked hopes that upward inflation pressure — a key driver of rate-hike expectations — would ease. Matthew Haupt, a hedge fund manager at Wilson Asset Management, said some short positions on rates would likely be unwound. "Central banks now have the breathing room to monitor inflation in the near term, which allows them to take a less hawkish stance," he said.

The Fed holds its first Federal Open Market Committee meeting under new Chair Kevin Warsh on Tuesday and Wednesday. Markets widely expect the central bank to hold its benchmark interest rate steady at the current target range of 3.50 to 3.75 percent.

The key question is what signal Warsh sends about the future rate path at his post-meeting press conference.

However, some analysts caution that the market's relief may not last. Andrew Ticehurst, a Sydney-based strategist at Nomura, said nerves could remain on edge until the Strait of Hormuz reopens on June 19. "How Israel acts in the meantime is also a variable," he added.

Adding to uncertainty, Washington and Tehran offered differing interpretations of the agreement almost immediately after it was announced — a signal markets read as a warning that follow-on negotiations will be rocky, with unresolved issues including Iran's nuclear program still on the table.