Iran and Israel Agree to Ceasefire

Yields decline sharply intraday but rebound in the afternoon. Treasury yields declined ~10 bps due to risk-off sentiment stemming from the Iran-Israel war and dovish commentary from Fed Vice Chair for Supervision Bowman. However, yields reversed course heading into the market close after Iran attacks on a US base in Qatar was viewed as a sign of de-escalation. Yields closed 2-5 bps lower across the curve, with the 2-year and 10-year at 3.86% and 4.35%, respectively. Meanwhile, oil prices fell sharply following Iran’s relatively muted attack on the US and the more recently announced cease-fire, with WTI just above $65 per barrel after closing near $75 per barrel on Friday.

Fed’s Bowman says she may be in favor of a July rate cut. After Fed Governor Waller offered support for earlier rate cuts on Friday, Fed Vice Chair for Supervision Bowman added fuel to the fire. She argued, “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market.” She added that while tariff impacts are delayed, the eventual effects should be “smaller” than initially expected. Meanwhile, Fed President Goolsbee also said today that the Fed can ease policy if inflation remains under control; he stated, “If we do not see inflation resulting from these tariff increases… I think we should proceed.”

Israel – Iran ceasefire announced. In a stunning turn of events, Iran warned the U.S. in advance of a limited strike against a U.S. airbase in Qatar. Those missiles were intercepted, and soon thereafter President Trump thanked Iran for the advance notice and announced a tentative ceasefire between Israel and Iran to begin around midnight, tonight. Acknowledging that some uncertainty still remains, President Trump said, “On the assumption that everything works as it should, which it will, I would like to congratulate both Countries, Israel and Iran, on having the Stamina, Courage, and Intelligence to end, what should be called “THE 12 DAY WAR.” The brief conflict proved to be a serious setback to Iran’s nuclear ambitions, with Vice President J.D. Vance saying that Iran’s enriched Uranium stock was “buried” by the attack, and if they pursue a weapon in the future, they will face U.S. retaliation.