Treasury yields fell Tuesday as bond markets reopened from a Memorial Day break on hopes of a Middle East peace deal, even as the U.S. military carried out fresh strikes on Iran. The numbers moved fast, but the hierarchy stayed familiar: state violence on one side, investors on the other, and ordinary people left to absorb the costs of both.
The yield on the 10-year U.S. Treasury note, the key benchmark for U.S. government borrowing, moved lower by more than 8 basis points to 4.485%. The 2-year Treasury note yield, which more closely tracks short-term Federal Reserve interest rate policy, dropped 7 basis points to 4.057%. The longer-dated 30-year Treasury bond yield declined more than 7 basis points to 5.009%. One basis point is equal to 0.01%, and yields and prices move in opposite directions.
Who Has the Power
U.S. forces carried out what Central Command described as "self defense" strikes in southern Iran early Tuesday. Secretary of State Marco Rubio, who is in India, said that the Strait of Hormuz will ultimately have to be opened "one way or the other." Iran's Islamic Revolutionary Guard Corps said Tuesday it would retaliate against violations of the ongoing ceasefire after it identified and engaged U.S. drones and an F-35 jet fighter that entered the country's airspace. The apparent flare-up in hostilities came despite President Donald Trump earlier indicating in a Truth Social post that a peace agreement could be in sight, with negotiations "proceeding nicely."
Those are the people and institutions setting the terms: military commands, cabinet officials, presidents, and armed forces. The people living under the consequences are nowhere in the decision room, only in the blast radius and the market reaction.
What the Markets Are Celebrating
Wall Street futures gained on hopes of U.S.-Iran peace talks. The S&P 500 on Friday clinched its eighth straight weekly gain, the index’s longest winning streak since 2023, as strong corporate earnings and AI enthusiasm helped investors look past concerns about the war with Iran. In the bond market, U.S. Treasury yields were trading at their highest levels in a year, and traders expected the Federal Reserve to keep interest rates on hold in the coming months, with a chance of a rate hike later this year, according to CME FedWatch. That was because the Strait of Hormuz remained closed, oil prices were at four-year highs and inflation expectations were moving higher.
The market’s logic is blunt: war, blockade fears, and inflation expectations become inputs for pricing, while the human cost gets translated into charts. Higher Treasury yields mean more expensive loans and mortgage rates, burdening consumers when sentiment is at record lows, according to the University of Michigan’s long-running survey of consumers.
Who Pays at the Bottom
The S&P 500 has clinched 18 record highs this year and is less than 0.5% away from hitting another. The AI buildout and tax cuts from President Donald Trump’s "One Big Beautiful Bill Act" have helped push shares higher, with gains concentrated in technology and AI-related stocks. Since the war with Iran began, the S&P 500 is up about 8.6%, while an equal-weighted version of the S&P 500 is up less than 1%.
That split says plenty about who gets fed by the system and who gets squeezed by it. The gains are narrow, concentrated, and top-heavy, while the broader market lags behind. The same economy that rewards a small set of winners also leaves consumers facing higher borrowing costs and record-low sentiment.
Corporate America continues to post strong profits. The S&P 500 is set to post the highest quarterly earnings growth rate since 2021, according to FactSet. First-quarter earnings growth is expected to be about 29% year-over-year, up from a prior estimate of 16.1%. The market is being driven by a narrow set of stocks, and investors are watching whether higher yields and inflation pressures will eventually weigh on valuations.
Looking ahead, investors will be monitoring a slew of economic data released later this week, including April's personal consumption expenditures report, the Fed's preferred measure of assessing inflation. Bank of America forecasts a 0.4% increase from March and a 3.8% increase in headline PCE year-on-year.
The Atlanta Federal Reserve’s daily tracker of economic growth pins U.S. GDP at 4.3%, and unemployment in April was unchanged at 4.3%, relatively low. A core measure of the Consumer Price Index that strips out food and energy rose 2.8% year-over-year in April. If core CPI heats up to more than 3% year-over-year in the coming months, higher yields are likelier to pressure stock prices. Investors and strategists said the market can digest higher yields if the economy keeps growing well, but if inflation fears intensify and bond market volatility increases, it could outweigh the positive outlook on economic growth.