U.S. Treasury Yields Drop as U.S.-Iran Ceasefire Eases Energy Shock Fears

Treasury Market Reacts to Ceasefire Agreement

U.S. Treasury yields declined across the curve on Wednesday as markets responded to an Iran war ceasefire agreement that improved risk sentiment and reduced fears of sustained disruption in energy markets. The 10-year U.S. Treasury yield fell by 10 basis points to 4.24%. Shorter-dated maturities saw similar moves, with the 2-year yield dropping 11.2 basis points to 3.721% and the 5-year yield declining 11.3 basis points to 3.863%. On the long end, the 30-year yield fell 7.1 basis points to 4.85%.

The yield moves coincided with a shift in expectations for the Federal Reserve’s policy path. Market participants brought rate cut scenarios for later in 2026 back into focus, after such expectations had been largely removed amid concerns that a war-induced energy shock would sustain or intensify inflationary pressures.

Details of the U.S.-Iran Ceasefire and Global Market Impact

The ceasefire agreement, mediated by Pakistan, led to a suspension of planned U.S. military strikes against Iran for two weeks. As part of the deal, Tehran agreed to allow safe passage through the Strait of Hormuz, a key route for global energy shipments. This development reduced immediate concerns over supply disruptions and the associated inflation risks.

Equity markets also reacted strongly to the agreement. Dow futures surged by more than 1,000 points, while Nasdaq 100 futures rose by more than 3%, reflecting improved risk appetite following the easing of geopolitical tensions.

Beyond U.S. markets, policymakers in other economies continued to flag risks from the conflict. India’s central bank kept policy rates steady while warning of inflation and growth risks linked to the Iran war. The Reserve Bank of India highlighted that the ongoing conflict had created significant uncertainty for the Indian economy, particularly through elevated energy prices.

FAQ

Why did U.S. Treasury yields fall on Wednesday?
Yields fell because the Iran war ceasefire agreement reduced fears of a prolonged energy shock, prompting investors to reassess the Federal Reserve’s future interest rate path and reintroduce expectations of rate cuts in 2026.

What were the key yield moves across the U.S. Treasury curve?
The 10-year yield fell 10 basis points to 4.24%, the 2-year dropped 11.2 basis points to 3.721%, the 5-year declined 11.3 basis points to 3.863%, and the 30-year decreased 7.1 basis points to 4.85%.

How did the ceasefire agreement affect global equity markets?
The agreement boosted global stock sentiment, with Dow futures jumping more than 1,000 points and Nasdaq 100 futures rising more than 3%.

How did India’s central bank respond to the conflict-related risks?
India’s central bank kept policy rates unchanged but warned that the Iran war posed inflation and growth risks, noting significant uncertainty for the Indian economy stemming from elevated energy prices.