Treasuries Gain Amid Speculation Over US-Iran Diplomatic Developments

Treasuries Rally as Middle East Diplomacy Lifts Oil Prices

US Treasuries gained on Wednesday, driven by lower oil prices and the prospect of Middle East diplomacy. The advance pushed US yields lower by two to four basis points across maturities, as the White House announced ongoing peace talks with Iran.

The gains were sustained despite Tehran rejecting a ceasefire and weak demand for the second of this week's three longer-term debt auctions. US benchmark crude oil pared a drop of more than 6% to less than 2%, following the recent surge in prices due to curtailed Middle East supply.

Since the US attacked Iran on February 28, yields have been influenced by oil prices, which have pushed up gasoline prices that factor into US inflation gauges. The prospect of higher inflation readings has wiped out expectations for Federal Reserve interest-rate cuts this year and begun to build the case for a rate increase.

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In futures markets, there are still odds of Fed hikes this year, with some market participants holding off on pricing out hikes until an agreement is reached.

European government bonds rallied on hopes for a deescalation, with yields on two-year German notes falling as much as 10 basis points to 2.57%, while those on UK peers slumped as much as 11 basis points to 4.36%.

The US Treasury will sell $44 billion of seven-year notes on Thursday.