By Karen Brettell

NEW YORK, April 17 (Reuters) - U.S. Treasury yields fell on Friday as optimism grew that the U.S.-Israel war with Iran may be nearing resolution.

Iran's foreign minister declared that passage for all commercial vessels through the Strait of Hormuz would remain fully open for the duration of the ceasefire.

Axios also reported that Washington and Tehran are negotiating a three-page framework to end the conflict. U.S. President Donald Trump said he believed a deal to end the Iran war would come "soon", although the timing remains unclear.

“Oil is falling pretty good here...I think that that's what's driving the whole move.” said Tom di Galoma, managing director of global rates trading at Mischler Financial Group.

“Do we actually get a prolonged ceasefire and a Strait reopening? I don't know. This seems like it's going to take some time to work itself out. But right now, I think that's what's going on… It's all the good news coming out of the Gulf,” di Galoma said.

Still, Trump said that the naval blockade on Iran will "remain in full force" until a deal with Tehran is struck.

The 2-year note US2YT=RR yield, which typically moves in step with Federal Reserve interest rate expectations, fell 6.4 basis points to 3.715%.

The yield on benchmark U.S. 10-year notes US10YT=RR fell 6.9 basis points to 4.24%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a positive 52.4 basis points.

Fed funds futures traders are now pricing in approximately 50-50 odds of a 25 basis point rate cut by year-end, after seeing only a 30% chance of a rate reduction on Thursday, according to the CME Group’s FedWatch Tool.

Oil prices had risen sharply due to war-related disruptions, stoking fears of another wave of inflation. Fed policymakers are now weighing those price pressures against signs of a softening labor market.