The two-year note yield, which typically moves in step with Fed interest rate expectations, fell 3.92 basis points to 4.252%.
The yield on benchmark U.S. 10-year notes dropped 5.52 basis points to 4.69%. It reached 4.747% on Friday, the highest since January 2025.
The 30-year bond yield fell 4.44 basis points to 5.2306% after peaking at 5.2811% on Friday, the highest since 2007.
The yield curve between 2- and 10-year notes was at 44 basis points.
Fed expectations and Treasury financing plans
The recent spike in oil prices amid the escalating war had fueled expectations that the Fed might need to raise rates to contain inflation, which remains stubbornly above the Fed's 2% annual target.
Traders are still parsing comments from Fed Chair Kevin Warsh last week, who noted that elevated Treasury yields have already tightened financial conditions even as the central bank held rates steady.
While the Fed was widely expected to leave rates unchanged at its July meeting, markets were pricing in roughly a one-in-three chance of a hike, reflecting growing uncertainty as traders adjust to Warsh's preference for less explicit forward guidance.
For September, fed funds futures now imply a 63% probability of a rate increase.
Separately, the Treasury Department is set to unveil its borrowing plans for the next two quarters this week, with investors watching closely for any signs of increased issuance of longer-dated debt.
The overall financing estimate is due later Monday, followed by auction-size details on Wednesday morning.
Yields fall as oil eases on de-escalation hopes
U.S. Treasury yields slipped Monday as oil prices eased on hopes for a de-escalation of the conflict with Iran, even as traders continued to weigh the odds of a Federal Reserve rate hike should the war drag on.
Oil prices tumbled more than $5 a barrel after U.S. President Donald Trump held off on a fresh strike against Iran, signaling he was pursuing a quick deal.
Tehran, however, said no talks were underway and none were planned — directly contradicting Trump's account and stoking concerns that a durable resolution remains elusive.
"This could be just another head fake in an ongoing conflict," said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income.
He warned that the conflict could reignite or settle into a prolonged standoff that imposes lasting restrictions on oil flows — keeping upward pressure on crude prices and weighing on broader markets.
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