Shorter-dated U.S. Treasury yields eased on Tuesday, as hopes of a diplomatic breakthrough between the United States and Iran pushed oil prices lower, supporting expectations that the Federal Reserve would not need to hike interest rates imminently.The yield on the 2-year note, which closely tracks expectations for Federal Reserve monetary policy, was down 1.7 basis points at 4.198%, easing after three ‌straight sessions of increases.Tehran ⁠received ⁠a proposal from mediators for a 10-day ceasefire although the decision by the Iran-aligned Houthis to ​impose a naval blockade on Saudi Arabia on Monday risked further escalating the conflict, keeping Brent crude ​just below $90 a barrel, a five-week high.Shorter-dated US Treasury yields ease in line with lower oil priceTreasury yields decreased as optimism about diplomacy led to a decline in oil prices, reducing inflation expectations that dropped below the Federal Reserve's target. Market indicators show that inflation expectations are steady and well anchored. Investors sense diminished pressure on the Federal Reserve to increase rates, with money markets anticipating that rates will stay the same in the upcoming meeting.U.S. inflation expectations have steadily eased this month even as oil prices remained elevated, with a market-based measure of one-year-ahead inflation falling below the Fed's 2% target for the first time ⁠since October 2024."Despite ‌the recent rally in oil prices, market-based measures of inflation ​have stayed ​well anchored," strategists at ANZ Research said in a note, adding ⁠that the Fed's credibility in inflation management, receding tariff effects, ​and a non-inflationary labour market were among several factors that explained ​the stability."This may be indicating that monetary policy is restrictive." Two-year yields have fallen more quickly than those for benchmark 10-year debt, an indication of investor belief that the Fed is under less pressure to raise rates.Data last week showed U.S. consumer prices increased at a slower pace than anticipated in June, prompting investors ‌to rein in their bets on interest rate hikes.Money markets largely expect the Fed to keep rates unchanged at 3.5%-3.75% at its ​July 28-29 meeting ​and have priced in ⁠a near 66% chance of a quarter-point hike by September.The U.S. Fed is in a blackout period before its policy meeting next week and the U.S. economic calendar ​is light this week.The benchmark U.S. 10-year yield was little changed at 4.598%.With so much focus among investors on the outlook for inflation right now, an auction of inflation-linked debt later in the week could attract scrutiny.The Treasury Department will sell $13 billion in 20-year bonds on Wednesday and $21 billion in 10-year Treasury Inflation-Protected Securities on Thursday.