US Treasury Yields Fall as Fed Meeting Begins, Inflation Expectations Ease

U.S. Treasury yields fell on Tuesday as the Federal Reserve's two-day policy meeting kicked off, and expectations for inflation and interest rate hikes continued to ease.

The yield on the 10-year U.S. Treasury note — the key benchmark for U.S. government borrowing — declined more than 4 basis points to 4.422%.

The 2-year Treasury note yield, which more closely tracks short-term Federal Reserve interest rate policy, was more than 1 basis point lower at 4.045%. The longer-dated 30-year Treasury bond yield dropped more than 4 basis points to 4.925%.

One basis point is equal to 0.01%, and yields and prices move in opposite directions.

Treasury yields have fallen back after a provisional peace agreement between Washington and Tehran was announced on Sunday, opening a path to extend the U.S.-Iran ceasefire for 60 days and reopen the Strait of Hormuz to all shipping.

Arriving at the G7 meeting, President Donald Trump said the peace framework with Iran has been signed, adding that the Strait of Hormuz will "completely reopen" on Friday, free of Iranian tolls. Trump said a formal signing ceremony would take place on Friday in Geneva.

Elsewhere, investors are watching for the two-day Federal Reserve policy meeting that gets underway on Tuesday, the first to be led by new chairman Kevin Warsh. The central bank is set to maintain its benchmark lending rate of 3.50% to 3.75%, according to implied prices used in the CME's FedWatch tool, while traders have pulled back on expectations for rate hikes later this year.

"A sustained solution to the Middle East crisis would ease a policy dilemma for leading central banks, which have come under pressure to raise rates to head off the inflationary impact from higher energy prices," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

"While a wide range of central banks hold policy meetings this week, the Fed is likely to set the tone for markets."

Economic data on housing and retail sales in May are also due to be reported on Wednesday.

— CNBC's Hugh Leask also contributed to this report.