US Treasuries rallied sharply as investors abandoned expectations for near-term Federal Reserve rate hikes, following President Trump's June 11 announcement of a diplomatic pivot with Iran.
The 10-year yield dropped to approximately 4.46%, a steep reversal from multi-year highs driven by prior military tensions. A draft 14-point memorandum reportedly addresses the Strait of Hormuz and sanctions relief.
By June 12, overnight-indexed swaps shifted to price the next potential rate increase as far out as March 2027. The Strait of Hormuz, a critical chokepoint for global oil supply, had previously created a persistent risk premium in crude prices, fueling inflation.
The diplomatic breakthrough erased that premium. Falling crude eased inflation pressures, reducing the urgency for Fed tightening and boosting bond attractiveness. However, analysts caution that a memorandum is not a treaty. A collapse in talks could rapidly unwind gains and push yields to new highs.