Treasury yields hold steady as traders assess mixed signals on Iran war de-escalation

• Trump issued an ultimatum threatening to turn Iran into 'Hell' if the Strait of Hormuz doesn't reopen by Tuesday 8 p.m. ET, though he later expressed hope for a deal; Iran has rejected the threats and demands compensation for war damages
• A ceasefire framework reportedly crafted by Pakistan could result in immediate hostilities ending and the strait reopening, with analysts estimating oil prices could drop $20-$30 per barrel if formalized, or surge to $130-$150 if infrastructure is struck
• Investors await key February PCE inflation data due Thursday to assess whether the oil shock is impacting prices in the U.S. economy, as bond market declines alongside equities signal stagflation concerns rather than recession fears

Treasury Yields Hold Steady Amid Iran Conflict Mixed Signals

Market Overview:

Treasury yields remained relatively flat on Monday as investors navigated conflicting signals regarding U.S.-Iran tensions. The 10-year Treasury yield added less than 1 basis point to 4.3525%, while the 2-year stood at 3.856% and the 30-year rose 1 basis point to 4.918%.

Key Developments:

The 10-year yield has climbed approximately 36 basis points since the conflict began, reaching its highest levels since mid-2025. President Trump issued an ultimatum Sunday demanding Iran fully reopen the Strait of Hormuz by Tuesday 8 p.m. ET, threatening severe consequences. However, he later expressed optimism about reaching a deal by Monday.

Iran rejected the threats, insisting the waterway would only reopen after receiving compensation for war damages. According to Reuters, both nations have received a Pakistan-brokered peace plan that could trigger an immediate ceasefire and strait reopening if accepted.

Market Implications:

The six-week conflict has driven energy prices higher and prompted fixed-income investors to reprice inflation expectations, reducing Federal Reserve rate cut projections for the year. CMC Markets Singapore estimates a formalized deal could lower oil prices by $20-$30 and boost stocks by up to 5%, while an infrastructure strike could push crude to $130-$150 per barrel.

Analysts warn that "bonds have declined alongside equities, suggesting stagflation rather than a recession," with heightened volatility expected around the Tuesday deadline. Low holiday trading volumes may amplify market movements.

Data Watch:

Investors await Thursday's February personal consumption expenditures index, the Fed's preferred inflation gauge, to assess whether the oil shock is impacting broader U.S. price levels.