Crude Slide and Iran Diplomatic Hopes Pull Treasury Yields Down

By Joseph Wilkins Posted Monday, Aug. 3, 2026 at 4:33 a.m. EDT; updated 12 minutes ago.

Bonds Rally as Oil Prices Drop

Early trading saw U.S. government bond prices climb as crude dropped, with investors betting the Iran conflict was cooling. One basis point is one-hundredth of a percentage point, and bond yields move inversely to their prices. So when yields fall, prices rise.

The 10-year Treasury yield, a key gauge of U.S. government borrowing costs, closed at 4.688%, having lost about six basis points. The two-year maturity, which tends to mirror Fed policy expectations, moved down by just under four basis points and closed at 4.254%. Yields on 30-year Treasury bonds dropped by more than four basis points, finishing at 5.232%. All three maturities moved lower on Monday.

The Iran Story Behind the Move

Monday brought a drop in crude after President Donald Trump said Washington and Tehran would return to negotiations, with new U.S. military action against the Islamic Republic put on hold at the urging of Gulf partners.

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Iranian foreign ministry spokesperson Esmail Baghaei, however, dismissed the idea of direct talks with the U.S. At a Monday press conference, he played down the prospect of immediate U.S.-Iran negotiations, saying Tehran is talking only with Oman about the Strait of Hormuz for now.

What the Fed Has to Do With It

Last week, the 30-year yield hit a level not seen since 2007, with investors reacting to what looked like a hawkish pause by the Federal Reserve. Several policymakers said Friday they would back another rate increase to push inflation down. The trio dissented in Wednesday's 9-to-3 decision to leave the central bank's benchmark rate unchanged at 3.5% to 3.75%. Monday's decline in the 30-year yield followed that move.

Seema Shah of Principal Asset Management, the firm's chief global strategist, said the drop in short-dated yields points to a more dovish policy outlook for the near term, while the jump in long-dated yields reflects worries that Fed Chair Warsh may not respond strongly enough if inflation stays elevated. "The bond market is effectively testing the Fed's credibility," Shah said.

Market Context

The drop in crude has helped ease one of the recent pressures that pushed yields up. Energy is a major input into consumer prices, so when oil falls, it tends to take some pressure off inflation. That dynamic matters for the Fed because the central bank has been trying to bring inflation back to its target without tipping the economy into a downturn.

Last week's climb in long-dated yields began with a hawkish Fed signal and pushed the 30-year to its highest level since 2007. Monday's retreat in yields suggests oil and diplomacy may be easing some of those concerns, though traders are still watching whether the Fed will need to raise rates again.

That market sensitivity helps explain why traders watched last week's jump in long-term yields for signs that policymakers might tolerate above-target inflation.

The Strait of Hormuz remains a key oil shipping route, and the Omani-mediated talks show that supply risks have not fully disappeared.

What Investors Are Watching Next

The key data point on Monday's calendar is the July manufacturing PMI report, due at 3:00 p.m. ET.

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