The US 10-year Treasury yield fell below the 4.5% psychological threshold on Monday, marking a sharp repricing of geopolitical risk following the announcement of a ceasefire agreement between the United States and Iran.
Despite the de-escalation, financial markets are refusing to embrace a return to pre-conflict stability, reflecting deep-seated concerns over persistent inflationary pressures.
The dip in long-term yields highlights a critical disconnect between geopolitical relief and macroeconomic reality.
While the cessation of hostilities removes the immediate threat of an energy supply shock, it does not erase the structural inflation that has plagued the global economy.
Investors are increasingly skeptical that a peace deal alone will be sufficient to tame price growth, especially as the European Union prepares to downgrade its growth projections and raise its inflation forecasts due to a stagflationary shock linked to the war.
Interest-rate markets are now pricing in a prolonged pause from the Federal Reserve.