Oil and Bond Markets React to Renewed US-Iran Strikes
Tuesday saw a sharp rise in oil prices following the U.S. military's announcement of additional strikes on Iran, which intensified worries about inflation and prolonged an earlier decline in stock and bond markets. The international Brent benchmark jumped almost 4% to $94 per barrel, while U.S. crude increased over 4% to surpass $89 per barrel.[S1]
US forces targeted two Iranian rocket launchers on Larak Island, and Tehran responded with attacks on targets in the UAE and Jordan, resuming direct hostilities after about a month of relative calm. President Trump also threatened further strikes, including on Kharg Island, Iran's key oil export hub.[S2]
Treasury Yields Hit Multi-Year Highs
By midday, the S&P 500 had fallen 0.65%, and the Nasdaq, which is heavy in tech stocks, dropped 0.86%. The 10-year Treasury yield, a key indicator for many consumer loans like mortgages and auto financing, reached its highest point since January 2025, climbing to roughly 4.79%, which implies higher borrowing expenses for individuals.[S1]
The rise in US yields paralleled similar moves worldwide, with Japanese benchmark bond yields hitting a record high and 30-year UK government bonds reaching their highest level since 1998. These moves reflect widening deficits, rising debt loads, and tight global oil supplies contributing to higher inflation.[S1]
Fed Rate Hike Expectations and Global Impact
Fed Chair Kevin Warsh signaled last week that the central bank is uneasy about the present inflation pace, which investors took as a hint that the Fed is likely to increase its benchmark interest rate. Market expectations now show a 73% probability of a Bank of Japan rate hike this month, and the yen stayed near the 160-per-dollar level.[S1][S2]
Treasury Secretary Scott Bessent dismissed concerns about rising bond yields, arguing that measured over Trump's entire second term, they are flat. He said he expects productivity growth to neutralize inflation concerns and dismissed high global prices as a temporary supply shock. He also pressured Japan to raise rates, saying he expects measures to strengthen the yen.[S1][S2]
Oil Supply Risks and Market Outlook
Oil tanker traffic through the Strait of Hormuz continues, but danger persists after a supertanker caught fire when it hit two naval mines. Additionally, global refining capacity is strained due to attacks on Russian refineries, pushing refined product margins to record highs.[S2]
Not all observers see rising yields as a bad sign. Matthew Klein argues they signal reinvigorated economic health, led by AI investment and government spending. However, if inflation remains the backdrop, stocks could get hit if the Fed acts. Peter Boockvar noted that another global rise in interest rates is gaining more attention from stock investors.[S1]
