U.S. Treasury yields slipped Tuesday as peace talks between the U.S. and Iran eased geopolitical tensions while oil futures dropped 3%. The 10-year note fell to 4.445% and the two-year declined to 4.168%, even as the dollar strengthened amid expectations of a Federal Reserve rate hike later this year.

May new home sales are projected to rise 1.6% after April's 6.2% contraction, according to a WSJ survey. The dollar's advance reflects investors unwinding short positions, while yield movements stem from resilient U.S. economic data, Bannockburn's Marc Chandler notes. Upcoming PCE inflation figures Thursday will test September rate hike expectations.

The Treasury yield curve continues flattening, with the two-to-10-year spread narrowing to 29 basis points—its flattest level since April 2025. This narrowing has revived recession talk, though Julius Baer's Afonso Borges cautions that curve inversions historically produce more noise than predictive signal.

European bonds followed suit, with U.K. gilts falling to 4.736% on expectations of Andy Burnham becoming prime minister. German Bunds slipped to 2.906% ahead of the Ifo business sentiment indicator. Limited trading ranges persist amid lingering inflation concerns and potential ECB tightening.