U.S. Treasury yields fall: a phase of recovery amid cooling inflation and oil prices

In late July 2026, U.S. Treasury yields oscillated lower. The 10-year benchmark slid from above 4.70% to around 4.62%, the 2-year yield dropped to about 4.32%, and the 30-year yield moved down in tandem to around 5.12%. The spread between the 10-year and 2-year narrowed to roughly 32 basis points, showing a typical “bull-to-flat” pattern.

The drivers are concentrated in two main threads. First is energy disinflation squeezing out inflation expectations—signals of easing from U.S.-Iran tensions around the Strait of Hormuz amid resumed shipping, with WTI falling more than 7% in a day and Brent slipping to around $86. This was reinforced by June CPI year-over-year falling to 3.5% and PPI month-over-month at -0.3%. The market quickly pulled back pricing of “oil prices spinning out of control → rate hikes restart,” cutting the probability of a July FOMC hike from more than 40% to 10%–15%. Second is repricing of short-end expectations—the 2-year, most sensitive to policy, fell slightly more than the long end, indicating that the bond market is mainly digesting “no near-term hikes” rather than betting on the start of a rate-cut cycle.

In terms of transmission, the decline in yields temporarily eased discount-rate pressure on high-duration growth stocks (AI, semiconductors). Gold rebounded, the U.S. dollar index weakened, and emerging-market FX and offshore China tech stocks gained valuation breathing room. But if the Middle East situation keeps flaring up and crude oil rebounds, the long end is likely to give back its gains.

Stay clear-headed: this is still a range-bound repair under “cooling inflation + supply constraints,” not a turn to easy policy. Fed Chair Wosch continues the “zero tolerance for inflation” stance, and the 30-year rate holding near 5.1% reflects that medium-term constraints from fiscal supply and term premium have not gone away. In one sentence: the short end can finally catch its breath, but the long end isn’t ready for celebration yet.