President Obama said it was a potentially significant breakthrough that could avert U.S. strikes against Damascus. Russian President Vladimir Putin said the proposal would only work if the U.S. and its allies denounce using force against Syria.
Oil plummeted two percent, with West Texas Intermediate dropping to $107.39 per barrel, its biggest one day decline in three weeks.
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"The market prices in fear a lot more readily than it prices in reality," said Gene McGillian, analyst with Tradition Energy. U.S. oil inventory data is reported Wednesday at 10:30 a.m. ET., and McGillian expects to see a draw down of 2.4 million barrels of oil and 1.4 million barrels of gasoline.
McGillian said oil will reverse course quickly if it appears the diplomatic efforts fail. "It appears right now there seems to be some kind of agreement coalescing, but those things could get dashed pretty quickly. Instead of being sledgehammered, the market doesn't know what to expect," McGillian said.
There is wholesale trade data for July at 10 a.m. ET. But some of the bigger events are in the credit market.
Verizon Communications was expected to bring the biggest corporate debt offering ever to market Wednesday. Demand for the offering was so strong, Verizon upped the offering to north of $40 billion. Verizon is using the proceeds to replace a bridge loan used to finance its acquisition of Vodafone's stake in Verizon Wireless.
"The fact that a deal of this magnitude gets done fairly easily should make bond holders in issuers with weak stock prices, clean balance sheets, and mediocre operational performance more concerned about event risk. To me, tech stands out as a sector ripe with opportunities to see large issuances for share repos and perhaps some M and A," says Joel Levington, managing director credit research at Brookfield Investment Management.
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Traders are also watching the auction of $21 billion in 10-year notes at 1 p.m. Wednesday, after Tuesday's successful 3-year auction.
"Historically, a high direct bid at the 3-year is often followed by above average direct bid for the 10-year," said Ian Lyngen, senior Treasury strategist at CRT Capital.
Verizon was a factor in the Treasury market Tuesday, and analysts are watching to see how it might impact the auction. "I think to some extent the market backed up today in anticipation of supply considerations. That said, I don't know if the potential corporate supply affect is going to be enough of a motivation to break the 3-percent level in 10s," Lyngen said.
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"There are going to be hedging related flows. That might create some demand for the 10-year, " said Lyngen.
Apple slumped more than 2 percent Tuesday after its much anticipated debut of its new low end phone. Traders were watching for headlines from China overnight to see if Apple announces a deal with China Mobile, China's biggest mobile carrier.
—By CNBC's Patti Domm. Follow here on Twitter