US-Iran Memorandum of Understanding Sparks, S&P Hits New High, Treasury Yields Plunge

According to Axios, the US and Iran have reached a Memorandum of Understanding, which includes extending the ceasefire by 60 days and officially initiating nuclear negotiations. If the agreement is approved, Iran must clear mines in the Strait of Hormuz within 30 days, and the United States will correspondingly lift the maritime blockade. The agreement still awaits Trump's final signature for confirmation.

Following the news, the S&P 500 index significantly broke through historical highs during trading, 0.2% higher than the previous record. The market's bets on the Federal Reserve's interest rate hikes retreated in tandem, SOFR futures yields had previously risen by about 2 basis points following the release of PCE data, and quickly turned negative by 3 to 4 basis points after the news landed.

The reaction in the bond market was equally pronounced. The yield on 10-year US Treasuries fell to the lowest point in a week, and European government bond yields also moved downward in sync, with the 10-year UK government bond yield falling by 5.5 basis points. The downward trend in energy prices, which led to a retreat in inflation expectations, is the core logic behind the strengthening of the bond market in this round.

It should be noted that the agreement has not yet been formally approved by Trump, and the normalization of physical conditions in the Strait of Hormuz will also take time. The market has experienced multiple cycles of "news-driven boost—back and forth upon landing" before, and the final agreement text and implementation details remain key variables.