Oil prices plunge 5% on Iran peace hopes, dragging Treasury yields lower

U.S. Treasury yields fell on Tuesday, with the 2-year note hitting a two-week low, as oil prices plunged over 5% on optimism for a resolution to the Iran war, prompting traders to reduce bets on a September Federal Reserve rate hike. The 2-year yield dropped 6.22 basis points to 4.194%, its lowest since July 20, while the 10-year yield fell 5.72 basis points to 4.627%. Qatar reported progress in mediation efforts to end the U.S.-Iran conflict, with Treasury Secretary Scott Bessent and Secretary of State Marco Rubio signaling advances in talks to reopen the Strait of Hormuz. Fed funds futures now price a 59% probability of a rate hike at the September 15-16 meeting, down from 68% on Monday. Recent oil price gains had fueled expectations the Fed would need to raise rates to curb inflation, which remains above the central bank's 2% target.