Treasury Yields Fall as Oil Prices Retreat on US–Iran Ceasefire, Boosting Rate-Cut Expectations

U.S. Treasury yields declined on Wednesday, with the benchmark 10-year note falling approximately 5 basis points to 4.25%, marking its lowest level in nearly three weeks. The move reflects a rapid shift in investor sentiment following geopolitical developments in the Middle East that have eased inflation concerns and reshaped expectations for monetary policy.

The drop in yields comes after the announcement of a temporary two-week ceasefire between the United States and Iran, a development that triggered a sharp decline in global oil prices. Lower energy costs have reduced fears of an inflationary spike, prompting markets to reassess the likelihood of interest rate cuts by the Federal Reserve later this year.

Oil price volatility has been a central driver of inflation expectations in recent months. With Iran signaling that it will allow ships to safely pass through the Strait of Hormuz—a critical artery for global energy supply—concerns over potential supply disruptions have subsided. This has helped stabilize energy markets and ease pressure on broader price levels.

As a result, market participants are now pricing in roughly a 60% probability of at least one Federal Reserve rate cut by the end of the year, a sharp reversal from earlier in the week when expectations for easing were virtually nonexistent. Prior to the escalation of tensions, markets had anticipated more than two rate cuts in 2025, highlighting the sensitivity of monetary policy expectations to geopolitical risk.

Attention now turns to upcoming economic data and central bank communications. Investors are closely awaiting the release of the Federal Open Market Committee (FOMC) minutes, which may provide further clarity on policymakers’ stance amid evolving global conditions. Additionally, the March Consumer Price Index (CPI) report, scheduled for release on Friday, is expected to offer critical insights into inflation trends, particularly those influenced by recent energy market dynamics.