Eurozone government bond yields tumbled on Tuesday as the U.S.-Iran interim peace deal lifted hopes for reduced Middle East tensions. The agreement pushed oil prices lower, easing inflation concerns that had driven expectations for continued European Central Bank rate hikes. Investors are now pricing in a more dovish monetary policy stance from the ECB.

Germany's 10-year government bond yields slipped 4 basis points to 2.960%, while French equivalents dropped 5.7 basis points to 3.587%, according to Tradeweb data. Jefferies economist Mohit Kumar noted that the ECB appears finished with its rate hiking cycle following the de-escalation. Brent crude fell 4.3% to $83.53 per barrel, removing pressure from energy markets.

The dollar weakened alongside Treasury yields, with the DXY index falling 0.3% to 99.496. The 10-year Treasury yield declined nearly 5 basis points to 4.439%, hitting a one-month low overnight. President Trump indicated a formal agreement would be signed Friday and the Strait of Hormuz would reopen immediately.

With oil trading near $83 and Middle East supply routes restored, central banks face less urgency to tighten policy aggressively. The bond market rally reflects investor confidence that inflation pressures may ease faster than previously expected, potentially keeping monetary policy on hold through year-end.