08.04.202613:34:06UTC+00Treasury Yields Lower as Oil Prices Sink

The yield on the US 10-year Treasury note fell about 5 bps to 4.25% on Wednesday, its lowest level in roughly three weeks. The move followed news of a two-week ceasefire between the US and Iran, which triggered a sharp drop in oil prices, easing fears of an inflationary spiral and strengthening expectations that the Federal Reserve could cut interest rates this year.

Markets now assign roughly a 60% probability to a rate cut by year-end, compared with virtually no chance at the start of the week. Before the conflict began, investors had been pricing in more than two cuts. As part of the temporary truce, Iran agreed to allow ships to transit the Strait of Hormuz, helping to ease concerns over potential disruptions to energy supplies.

Investors will also be closely watching the FOMC minutes due later in the day for further guidance on the Fed’s policy outlook. In addition, Friday’s release of US March CPI data is expected to offer further signals on inflation pressures related to the ongoing conflict.