Key Takeaways

• U.S. 10-year at 1-month low: The benchmark Treasury yield drifted to 4.43% as fixed-income markets aggressively priced out worst-case inflation scenarios.
• 2-year yield steadies: The policy-sensitive rate held at 4.05% after striking a one-week low in the prior session.
• December Fed hike odds collapse: The implied probability of a year-end rate increase fell to just 40% — down sharply from 69% a week ago, per CME FedWatch.
• German 10-year at 2-week low: The Eurozone’s benchmark Bund yield hovered at 2.92%, reflecting easing inflation expectations.
• Eurozone 2-year also at 2-week low: The policy-sensitive short-end continues to unwind ECB hike bets.
• Geopolitical premium fading: The hawkish central bank bets built up during three months of war are visibly deflating as oil prices fall.
• Measured stance maintained: Traders remain cautious due to the lack of concrete details on the preliminary peace accord.
• U.S. vs. European debt divergence: Treasuries absorbed safe-haven flows during the war; European paper severely underperformed on localized energy shock fears — now reversing.
• Eurozone recovery hinges on central bankers: Whether the ECB and peers look through recent price spikes or maintain restrictive posture is the key question.
• Lloyds Bank’s warning: “A clear time wedge persists between political rapprochement and traffic normalisation — and that wedge appears to have widened, reflecting the complexity and residual uncertainty surrounding the situation.”

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Sovereign bond yields across the United States and the Eurozone extended their decline on Tuesday as fixed-income markets aggressively unwound the worst-case inflationary scenarios built up during the three-month U.S.-Iran conflict.

While traders adopted a measured stance due to a lack of concrete details on the preliminary peace accord signed by President Donald Trump, the cessation of hostilities continued to deflate crude prices as investors rethought their monetary policy expectations.

U.S. Treasuries Lead the Unwind

The benchmark 10-year U.S. Treasury yield drifted lower to a one-month low of 4.43% by 0800 ET (1200 GMT). Meanwhile, the policy-sensitive two-year yield steadied at 4.05%, consolidating after striking a one-week low in the previous session.

The geopolitical premium that fueled hawkish central bank bets during the war was showing clear signs of fading. According to the CME FedWatch Tool, the implied probability of a December rate hike has now come down to just 40% — a dramatic retreat from the near-70% probability priced just a week ago.

European Bonds at a Critical Juncture

Meanwhile, the yield on Germany’s 10-year Bund — the Eurozone’s benchmark — hovered at two-week lows of 2.92%. The policy-sensitive two-year note, which moves in lockstep with European Central Bank policy expectations, also hovered at a matching two-week low.

The truce leaves European sovereign debt at a critical juncture relative to its peers across the Atlantic. During the conflict, U.S. Treasuries absorbed the bulk of traditional safe-haven flows. In contrast, European paper severely underperformed as investors feared a catastrophic, localized energy shock.

Any sustained recovery for Eurozone debt now hinges on whether central bankers will look through the recent price spikes or maintain their restrictive posture.