Markets Risk-On After Iran Shifts Tone

Yields rise ahead of Wednesday’s FOMC meeting. Concerns about a prolonged war in the Middle East subsided today, leading to a Treasury sell-off and an equity rally. Yields climbed 2-6 bps across a steepening curve, with the 2-year now at 3.97% and the 10-year at 4.45%. The former remains 5 bps below pre-CPI and PPI levels (from last week) while the latter is just 1 bp lower after a 10+ bp decline from Wednesday through Thursday. Meanwhile, the NASDAQ rose 1.52% today after a 1.30% drop on Friday.

Oil prices fall after Iran signals willingness to resume nuclear program talks. After the fourth consecutive day of air strikes between Israel and Iran, Iran appears ready to de-escalate the conflict. According to the Wall Street Journal, Iran notified the U.S. and Israel through Arab intermediaries that they would like to end the attacks and resume nuclear program discussions, so long as the U.S. does not join the Israeli attacks. Brent (~$73 per barrel) and WTI (~$71 per barrel) oil prices declined today following Friday’s 7%+ surge, a sign of optimism that a prolonged war can be avoided. President Trump urged the nations to negotiate after confirming reports that Iran wants to de-escalate, saying, “they should talk immediately before it’s too late.”

Senate reveals tax bill edits. Senate revisions to the House-passed tax bill included some notable changes, including a $5 trillion debt-ceiling increase compared to the House’s $4 trillion, deeper cuts to Medicaid spending, removal of taxes on tips and overtime pay, and making permanent certain business tax cuts that the House version would let expire in 2029. A key item that remains tentative is the SALT deduction cap; while a $10,000 cap was kept as a placeholder, Senate Majority Leader John Thune told reporters that it is subject to further negotiations. Still, the Senate will vote on the bill next week in an attempt to meet a July 4th deadline to send the bill to President Trump’s desk.