US Treasuries extended gains Tuesday as optimism grew over a potential end to the Iran conflict, with investors betting lower oil prices could prompt Federal Reserve rate cuts. Two-year and 10-year yields dropped as much as six basis points to 3.73% and 4.26%, respectively, while Brent crude futures briefly dipped below $100 a barrel.

The market is pricing a 40% chance of a quarter-point rate cut by year-end, up from near-zero odds just a week ago. President Trump's prediction that the conflict could end within two to three weeks has boosted hopes that the Fed can ease policy without inflation concerns. The Bloomberg Dollar Spot Index fell 0.3%, extending earlier losses.

Upcoming economic data including ADP jobs figures, retail sales, and ISM manufacturing will test whether this optimism is justified. While markets focus on potential peace, the Strait of Hormuz remains largely closed and attacks continue across the Gulf. Even if the conflict ends within Trump's timeframe, energy markets will need time to normalize. The bond market is still recovering from last month's selloff when inflation fears drove yields 40 basis points higher.