U.S. Treasuries climbed while the dollar weakened as investors interpreted signs of progress toward a potential U.S.-Iran peace agreement. The bond market rally reflected growing confidence that geopolitical tensions in the Middle East might ease, reducing the risk premium that has kept yields elevated in recent months.

Oil markets transmitted optimism about diplomatic breakthroughs after a conditional ceasefire between Israel and Lebanon emerged, despite continued clashes in the region. Crude futures showed modest gains as traders priced in the possibility that broader Middle East de-escalation could follow, potentially easing supply concerns that have supported energy prices throughout the year.

The market reaction suggests investors are increasingly focused on the prospect of reduced geopolitical risk rather than current hostilities. Treasury yields have been particularly sensitive to Middle East developments, given the region's importance to global energy markets and shipping routes. A lasting peace framework would likely support further bond buying.

These moves highlight how quickly market sentiment can shift when diplomatic openings appear, even amid ongoing conflict. The dollar's decline against major peers reflects the typical pattern of investors seeking alternative safe havens when geopolitical uncertainty shows signs of abating.