Treasuries advance as investors lower Fed rate hike expectations after Iran deal

US Treasuries rallied across the curve as investors rapidly repriced their expectations for Federal Reserve rate hikes following news of a deal to end the US-Iran conflict. The 10-year Treasury yield fell to around 4.46%, a sharp reversal from the multi-year highs that had defined much of 2026’s bond market.

The catalyst: President Trump announced on June 11 a pause on military strikes against Iran, pivoting toward diplomatic negotiations.

What changed, and how fast

Before the diplomatic shift, earlier military engagements between the US and Iran in 2026 had pushed Treasury yields significantly higher. The 30-year yield had been approaching multi-year highs as traders priced in a prolonged conflict that would keep energy costs elevated and inflation sticky.

Then came the June 11 announcement, followed by reports of a draft 14-point memorandum of understanding between the two nations. The framework reportedly addresses regional de-escalation, the Strait of Hormuz, and sanctions relief.

By June 12, the bond rally was in full swing. Overnight-indexed swaps shifted dramatically, with some contracts beginning to price the next potential rate hike as far out as March 2027. Just days earlier, the market had been bracing for the possibility of near-term tightening.

The inflation connection

The Strait of Hormuz, which the draft memorandum reportedly addresses, is the narrow waterway through which roughly a fifth of the world’s oil supply passes daily. Military tensions in the region had created a persistent risk premium in crude prices throughout much of 2026, feeding directly into inflation readings that kept the Fed on its toes.

The Iran deal broke that chain. Crude prices fell on the news, which eased the inflation pressure, which reduced the perceived need for the Fed to act, which made bonds more attractive, which sent yields lower and prices higher.

What this means for investors

The rally creates both opportunities and risks for bond market participants, depending on how much faith they have in the durability of the diplomatic breakthrough.

A 14-point memorandum of understanding is not a signed peace treaty. If talks collapse, the entire trade unwinds — yields had been pushing toward multi-year highs on pessimism before falling to 4.46% on optimism, and a return to military escalation could push yields to new peaks as oil prices spike and inflation expectations ratchet higher again.

Swaps pricing the next hike out to March 2027 reflects genuine relief, but the Fed’s actual decisions will depend on realized inflation data in the months ahead. The Fed itself hasn’t changed its stance.

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