Treasury yields slide as oil prices fall amid hopes for new U.S.-Iran peace talks

U.S. Treasury yields slid on Friday as oil prices dropped following a report that Pakistan is ​exploring a way to restart peace talks between the U.S. and Iran.

The yield on the 10-year U.S. Treasury note — the key benchmark for mortgage and auto loans and credit card debt — was last down more than 2 basis points at 4.679%. On Thursday, it had risen above 4.7%, the highest since Jan. 15, 2025, before the start of President Donald Trump's second term.

The 2-year Treasury note yield, which more closely tracks short-term Federal Reserve interest rate policy, also pulled back more than 3 basis points, to 4.326%. The longer-dated 30-year Treasury bond yield was down less than 1 basis point, to 5.162%.

One basis point equals 0.01%, and yields and prices move inversely to one another.

On Friday, Reuters reported that Pakistan, with China's support, is exploring a path to resume talks between the U.S. and Iran on ending the conflict in the Middle East. The report said that Pakistan's foreign minister discussed the new push with Chinese officials last week.

International benchmark Brent crude futures declined 4% to around $96 per barrel, while U.S. West Texas Intermediate futures shed 3% to trade at around $89.

"Today's decline in oil prices has tempered some of the recent upward pressure on inflation and rate expectations," said JoAnne Bianco, senior investment strategist at BondBloxx. "Long-dated U.S. Treasuries remain especially sensitive to developments in the Middle East given their impact on energy markets and longer-term inflation expectations."

As the Fed gears up for its policy meeting next week, Thomas Urano of Sage Advisory noted that the challenge for the central bank is "not simply forecasting inflation but assessing how long energy-related disruptions may persist."

"Policymakers have limited ability to offset supply-driven price shocks, and the uncertainty surrounding Middle East developments reduces confidence in any projected rate path. Until energy flows through the region become more predictable, geopolitical headlines will continue to influence inflation expectations, bond yields, and Federal Reserve policy decisions," the co-CIO said.

Oil prices moved off their lows of the day after The New York Times reported Friday that President Donald Trump was meeting with top advisors and his cabinet's senior members to decide on if the U.S would intensify attacks against Iran.

This comes after Trump told Axios on Thursday he will soon make a decision on whether to launch a "massive attack" on Iran after the conflict in the Middle East expanded to a new battleground in the Red Sea earlier this week as Houthi rebels in Yemen threatened oil tankers.

"I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it," the president said.

U.S. forces have already hammered Iranian targets in recent days. In fact, Central Command completed its 13th night of strikes in a row overnight.

Yields moved lower earlier in the day after the S&P Global Flash U.S. purchasing managers index — which measures the economic health of American manufacturing and the service sector — moved down slightly in July to 53.8, below the 54.4 that economists polled by Dow Jones had estimated.

— CNBC's Chloe Taylor contributed to this report.