U.S. Treasury yields moved lower across the curve on Tuesday morning as bond markets stabilized following recent volatility.
The pullback was supported by falling global energy prices and growing hopes for diplomatic progress during the United Nations General Assembly.
10-Year Treasury Yield Falls Below 5%
The benchmark 10-year Treasury yield slipped to around 4.926%, its lowest level in roughly one week.
The move pushed the yield back below the closely watched 5% level, which it briefly crossed after last week’s hawkish Federal Reserve rate increase.
Meanwhile, the policy-sensitive 2-year Treasury yield declined to around 4.730%. It had recently climbed to its highest level since 2024.
Fed Rate Expectations Keep Short-Term Yields Elevated
The 2-year Treasury yield is closely linked to expectations for Federal Reserve monetary policy.
Last week, the Fed voted unanimously to raise interest rates to a range of 3.75% to 4%.
Following the decision, markets quickly reduced expectations that the increase would be a one-time move.
Traders are now pricing in roughly a 55% probability of another rate hike in October. That shift has driven a sharp repricing in short-term Treasury yields.
Long-Term Treasury Yields Show More Stability
Longer-term Treasury yields have moved more gradually.
The 10-year and 30-year yields have been less volatile than the short end of the curve, suggesting investors remain more confident about the longer-term inflation outlook.
Federal Reserve Chair Kevin Warsh maintained a firm policy stance despite public pressure from the White House.
That approach helped reassure markets that the central bank remains focused on keeping inflation close to its 2% target over the long term.
Falling Oil Prices Reduce Inflation Pressure
Long-term Treasury yields are also heavily influenced by growth expectations and global energy costs.
Crude oil prices continued to decline as shipping companies expanded alternative routes around Persian Gulf bottlenecks.
These included overland pipelines and ship-to-ship loading operations near Oman.
Lower oil prices helped reduce some of the inflation risk premium that had previously been reflected in longer-term Treasury yields.
UN Diplomacy Supports Bond Market Sentiment
Investor sentiment also improved after U.S. President Donald Trump signaled that he was open to direct discussions with Iranian President Masoud Pezeshkian.
Pezeshkian is in New York this week for the United Nations General Assembly.
The possibility of renewed U.S.-Iran diplomatic talks helped ease concerns about further disruption to energy markets.
As oil prices declined and geopolitical risk eased, demand for longer-duration Treasury securities strengthened.
This combination helped flatten the Treasury yield curve, with long-term yields falling faster than short-term rates.
