"The ongoing U.S.-Iran conflict, including airstrikes and troop deployments, raised fears of oil supply disruptions near the Strait of Hormuz, causing crude prices to spike and embedding higher energy costs into inflation expectations."
"Increased military spending added to already elevated deficit projections, deepening term-premium pressure on Treasuries and signaling reduced demand from investors, which questioned long-term fiscal sustainability."
"The Federal Reserve held the federal funds rate steady at 3.50%-3.75%, citing sticky inflation and uncertainty tied to the Iran conflict, while futures markets largely priced out meaningful easing this year."
"Jurrien Timmer flagged the technical significance of the move, noting that if the 10-year yield breaks out of its long triangle pattern, it could pose problems for bonds, equities, and other assets."
Bond prices declined as investors sought higher returns on longer-dated government debt, pushing the 10-year yield to about 4.39%. This shift was driven by three main factors: the U.S.-Iran conflict raised oil supply disruption fears, leading to higher energy costs and inflation expectations. Increased military spending exacerbated fiscal concerns, deepening pressure on Treasuries. Weak bond auctions indicated reduced investor demand, questioning long-term fiscal sustainability. The Federal Reserve maintained the federal funds rate, projecting only one rate cut in 2026, which contributed to a steepened yield curve and persistent inflation bets.
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