Yields plummet on potential de-escalation in the Middle East. Treasury yields declined 13-20 bps from intraday highs this morning on news that President Trump would pause strikes on energy infrastructure in Iran as “productive” talks were ongoing. The move partially reversed as Iran denied the discussions and yields traded in a choppy ~10 bp range for the remainder of the session. The 2-year yield ultimately closed 5 bps lower at 3.85%, and the 10-year yield closed 4 bps lower at 4.34%. Meanwhile, equities rallied on the news of potential de-escalation, with the S&P 500 and NASDAQ closing 1.15% and 1.38%, respectively.
Trump says US will pause strikes on critical Iranian energy infrastructure. President Trump said the US will postpone strikes on Iran’s critical energy and electricity infrastructure for five-days. Trump cited “productive conversations” with Iran, saying the two nations have found “major points of agreement.” Despite the president’s claims, Iran denied that negotiations have taken place. Iranian state television said American intermediaries had tried to negotiate in recent days, but Iran had not responded. Following President Trump’s comments today, Iran announced new missile and drone launches targeting Israeli and US assets. Oil markets were volatile on the news, as Brent crude prices swung more than $18 intraday before closing below $100 a barrel for the first time in nearly two weeks.
Fed’s Goolsbee keeps both rate cut and hike on the table. Chicago Fed President Austan Goolsbee signaled today that the Fed’s policy outlook largely hinges on the Iran conflict. Goolsbee explained, “We could be back to the environment with multiple rate cuts for the year if inflation behaves. I could see circumstances where we would need to raise rates if it was going a different way, and inflation was getting out of control.” The FOMC voted last week to leave policy rates unchanged, citing ongoing uncertainty from the war. Rate hikes are not the base case for most officials, with the median projection showing one rate cut in 2026, though Fed Chair Powell clarified that it is too soon to fully gauge the impact of war and its impact on US inflation and growth.