Treasuries-U.S. yields fall as oil tumbles

NEW YORK, July 27 (Reuters) - U.S. Treasury yields declined on Monday as crude oil prices plunged following a suspension in U.S.-Iran hostilities, with a rate decision from the Federal Reserve scheduled for later this week. Iran will halt its own attacks as long as the United States does the same, a senior Iranian official told Reuters on Sunday. The development comes as the United States pressed pause on its bombing campaign after two weeks of attacks. However, Saudi Arabia, Jordan and Iraq reported drone attacks on Monday, as Tehran appeared to put President Donald Trump's latest turn to the test. The yield on the benchmark U.S. 10-year Treasury note US10YT=RR fell 2 basis points to 4.647% after falling as low as 4.626%. Oil prices tumbled more than 7% as the U.S. and Iran paused strikes over the weekend following two weeks of attacks, raising hopes of a diplomatic solution that would de-escalate the conflict and allow shipping to resume in the Strait of Hormuz. U.S. crude CLc1 fell 6.08% to $83.90 a barrel and Brent LCOc1 fell to $90.34 per barrel, down 6.6% on the day to hold near one-week lows. Brent had touched a two-month high of $102 last week. "It's as durable as a shooting star," said Jay Hatfield, chief executive and chief investment officer at Infrastructure Capital Advisors in New York. "We have had the view that Iran was not going to come to a long-term agreement, but did think they would kick the can down the road, so we might get some more can kicking." Yields have been rising in recent days as renewed strikes in the Iran war have caused a reversal in oil prices and again fanned inflation fears, in turn buoying expectations the U.S. Federal Reserve may hike interest rates. The 10-year yield is up about 23 basis points for the month, on track for its largest monthly increase since March, when the Iran war began. The yield on the 30-year bond US30YT=RR fell 2.2 basis points to 5.14% and was on pace for its biggest decline since July 17. Expectations for a rate hike of at least 25 basis points from the Fed at its policy announcement on Wednesday are 35.8%, according to CME FedWatch, up from 16% a week ago. Markets are pricing in an 80.1% chance for a hike at the central bank's September meeting. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 32.4 basis points. A growing number of major brokerages believe there is a real risk of the Fed delivering a rate hike at its meeting this week, given this month's surge in oil prices and the escalation in tensions in the Middle East. The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, was unchanged at 4.331%. More supply will come to the market this week, when the Treasury will auction $69 billion in two-year notes and $70 billion in five-year notes on Monday. Another $44 billion in seven-year notes are scheduled for auction on Tuesday. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.221% after closing at 2.251% on July 24. The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.225%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

Treasuries-U.S. yields fall as oil tumbles

Yields decline as oil prices plunge

Fed hike expectations rise and Treasury supply increases

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