Bond markets returned from the holiday weekend pricing in peace deal optimism, even as fighting flared in the Strait of Hormuz
Treasury yields retreated Tuesday as bond markets reopened after the Memorial Day holiday, with investors pricing in cautious optimism over a potential Middle East peace agreement even as US forces conducted new strikes against Iran and tensions in the region showed no clear sign of abating.
The benchmark 10-year Treasury note yield dropped more than 6 basis points to 4.510%, according to CNBC, catching up with a broad decline in European sovereign yields that had already moved lower on Monday. The 2-year note — which tracks market expectations for near-term Federal Reserve policy — fell a similar amount, settling around 4.066%. The 30-year bond yield slipped more than 5 basis points to 5.028%. Yields and prices move inversely.
The gains in Treasuries came despite a decidedly mixed backdrop on the geopolitical front.
US Central Command described strikes it carried out in southern Iran early Tuesday as acts of "self defense," following an exchange of fire Monday in which the US Navy sank two Islamic Revolutionary Guard Corps vessels it said were attempting to lay mines in the Strait of Hormuz, according to the Wall Street Journal.
Iran responded to that incident by firing surface-to-air missiles at American aircraft, drawing retaliatory US strikes on missile launchers near Bandar Abbas, a U.S. official told the Journal.
The IRGC on Tuesday warned it would respond to further ceasefire violations, having identified and engaged US drones and an F-35 fighter jet it said crossed into Iranian airspace.
Secretary of State Marco Rubio, speaking from India, said the Strait of Hormuz would need to be opened "one way or the other" — a statement that underscored Washington's determination to keep the critical shipping lane navigable while leaving the precise mechanism deliberately vague.
The flare-up sat uneasily alongside comments from President Donald Trump, who posted to Truth Social earlier that peace negotiations were "proceeding nicely" and suggested a broader agreement could be within reach.
