US Treasury Market: Treasury Bonds Rise, Fed Rate Hike Premium Gives Back

U.S. Treasury yields rose on Monday, with short-term bonds leading the curve higher after President Trump announced that he had held “productive” talks with Iran, delaying strikes on Iran’s energy infrastructure. Despite investors weighing statements from both the U.S. and Iran, the news was viewed as positive for Treasuries, which gained intraday and closed near their daily highs. The Fed rate hike premium retreated, and there was a re-emergence of rate cut expectations at the end of the year and in 2027.

Just after 3 p.m. New York time, short-term yields fell as much as 7 basis points, with the 2s10s spread widening by about 3 basis points from last Friday’s close.

The 10-year Treasury yield dropped approximately 5 basis points to 4.33%, trading at the lower end of the intraday range of 4.3% to 4.44%.

The overnight index swap tied to the Federal Reserve meeting date showed a dovish shift during the session, with the rate hike premium slightly retreating. By the close, market pricing reflected about a 3 basis point rate increase at the September policy meeting, while rate cut expectations reappeared and extended into 2027.

In the Treasury options market, demand for upside protection for larger gains over the coming weeks was observed.

Early trading futures flows showed significant block buying of 10-year and 2-year Treasury futures, supporting the bond rally in the morning.

WTI crude oil futures fell about 10% on the day, also supporting Treasury gains.

At 3:25 p.m. Eastern Time:

• 2-year Treasury yield: 3.8243%
• 5-year Treasury yield: 3.9425%
• 10-year Treasury yield: 4.3301%
• 30-year Treasury yield: 4.9111%
• 5-year and 30-year yield spread: 96.68 basis points
• 2-year and 10-year yield spread: 50.37 basis points