Yields fall as US-Iran tensions cool. Treasury yields declined today, as the US and Iran halted attacks over the weekend after nearly two consecutive weeks of strikes, providing relief for oil and energy-driven inflation concerns. The 2-year yield closed 1bp lower at 4.32%, while the 10-year yield closed 3 bps lower at 4.65%. Brent crude tumbled over 9%, now trading around $88 per barrel. Meanwhile, equities were narrowly mixed today, with the S&P 500 closing just 0.02% higher, while the NASDAQ closed 0.18% lower.
US, Iran pause strikes as diplomacy resumes. President Trump shared today that peace talks between the US and Iran had restarted, as attacks between the two nations remain on hold for the third straight day. Trump said, “The only reason they want to meet is because we’ve been hitting them very hard,” and added that if a deal is not reached, fighting will resume. It remains unclear whether meaningful negotiations are underway, as Iranian Foreign Ministry spokesperson Esmail Baghaei said earlier in the day that no formal negotiations are occurring, though mediators may be passing messages. It is also reported that Oman and Iran are working on an agreement to reopen the Strait of Hormuz.
Fed expected to hold rates steady at this week’s FOMC meeting. The July FOMC kicks off tomorrow, and officials are largely expected to leave policy rates unchanged at 3.50-3.75%, supported by the combination of softer-than-expected inflation data and strong employment data from June. Nancy Vanden Houten, lead economist at Oxford Economics, said, “I expect [Warsh] will acknowledge recent better-than-expected inflation data, while acknowledging the upside risk to inflation from the renewed hostilities between the US and Iran.” Futures markets have a rate hike priced in as 38% likely for this week’s meeting, though a rate hike is fully priced in for the next FOMC meeting in September.
