Treasury yields fall ahead of Kevin Warsh's first Fed meeting

• The 10-year Treasury yield fell over 2 basis points to 4.449%, while the 2-year yield dropped over 1 basis point to 4.047%
• The Fed is expected to hold its benchmark rate at 3.50% to 3.75%, with traders pulling back expectations for rate hikes later this year
• The U.S.-Iran ceasefire agreement signed Sunday will fully reopen the Strait of Hormuz on Friday, easing central bank pressure to raise rates against energy-driven inflation

Summary

Market Movement:

U.S. Treasury yields declined on Tuesday ahead of the Federal Reserve's two-day policy meeting. The 10-year note yield fell over 2 basis points to 4.449%, the 2-year yield dropped over 1 basis point to 4.047%, and the 30-year yield decreased over 1 basis point to 4.957%.

Key Developments:

The Fed meeting marks the first led by new chairman Kevin Warsh. Markets expect the central bank to maintain its benchmark interest rate at 3.50%-3.75%, with trader expectations for rate hikes later this year moderating. The meeting coincides with easing inflation expectations among investors.

Geopolitical Impact:

Treasury yields retreated following Sunday's announcement of a peace framework between the U.S. and Iran. President Trump confirmed the agreement would be formally signed Friday in Geneva, with the Strait of Hormuz set to completely reopen Friday without Iranian tolls. The 60-day ceasefire extension has reduced pressure on central banks to raise rates in response to energy price inflation.

Market Implications:

According to UBS Global Wealth Management's Mark Haefele, resolving the Middle East crisis alleviates a policy challenge for central banks facing inflationary pressures from higher energy costs. The Fed's decisions are expected to set the market tone globally, with several central banks holding meetings this week.

Upcoming Data:

Investors await economic data on housing and retail sales for May, scheduled for release Wednesday, which could further influence monetary policy expectations and market direction.