Bond yields rise across 4 major markets as U.S.-Iran deal stalls

Renewed U.S. strikes on Iran pushed bond yields higher across 4 major markets as oil climbed above $93.

Uncertainty over a U.S.-Iran peace deal pushed government bond yields higher across four major markets Monday, with the German 10-year Bund yield rising 4.6 basis points to 2.974% as Brent crude climbed 2.1% to $93.02 a barrel.

"Oil has found its way back onto the worry list, as hopes for a cleaner U.S.-Iran breakthrough run into fresh uncertainty," Matt Britzman, senior equity analyst at Hargreaves Lansdown, said.

The moves extended across the Treasury curve, with the two-year yield up 1.9 basis points to 4.032% and the 10-year rising 1.6 basis points to 4.468%, according to Tradeweb data. U.K. gilt yields added 3 basis points to 4.837%, while Japan's 10-year JGB yield climbed 2.5 basis points to 2.680%. Brent crude earlier surged about 3% Tuesday after the U.S. sank two boats belonging to Iran's Islamic Revolutionary Guard Corps that were laying mines in the Strait of Hormuz, followed by Iran firing surface-to-air missiles at U.S. warplanes.

The standoff threatens to keep oil prices elevated, reigniting inflation expectations and forcing central banks to maintain or tighten policy. Markets now price a roughly 50% probability the Federal Reserve will need to hike rates by year-end, while European Central Bank Executive Board member Isabel Schnabel told Reuters the ECB should raise rates in June. "Given the size and the persistence of the current shock, looking through is no longer an option," Schnabel said.

The Strait of Hormuz handles about 21% of global oil trade, making any disruption to shipping through the waterway a direct threat to energy supplies and prices. U.S. Defense Secretary Pete Hegseth said Saturday the U.S. was ready to restart attacks on Iran if a deal could not be reached, while President Donald Trump said in a Fox News interview that the U.S. was "close to a very good deal" but suggested a potential return to fighting as an alternative. Iranian Parliament Speaker Mohammad Ghalibaf countered Sunday that there would be no deal unless Iran's rights were secured.

Oil Prices and the Inflation Calculus

The inflationary impulse from rising crude prices is reshaping rate expectations across developed markets. Fed Governor Christopher Waller said Friday he supports removing the "easing bias" from the Fed's policy statement, making clear that "a rate cut is no more likely in the future than a rate increase." Krishna Guha at Evercore said Waller's remarks "confirm the hawkish shift at the Fed."

In Japan, Bank of Japan Deputy Governor Ryozo Himino said the central bank remains committed to further rate hikes, though the timing and pace will depend on the economic impact of the Middle East conflict. The 10-year JGB yield at 2.680% remains near levels that have historically prompted the BOJ to conduct emergency bond-buying operations. U.K. gilt yields, while up on the day, remain well below the highs above 5.1% reached in mid-May, suggesting some investors still expect a resolution.

Cross-Asset Ripples

Equity markets showed mixed reactions. S&P 500 futures rose 0.3% and Nasdaq futures added 0.5%, supported by continued AI-driven demand for semiconductor stocks, with Japan's Nikkei climbing 1.1% to fresh all-time highs. European stocks edged lower, with Euro Stoxx 50 futures down 0.1%, as automobile and technology shares declined. The dollar firmed against the yen at 159.45, with traders wary of Japanese intervention should the pair break above 160.00. Gold slipped 0.3% to $4,523 an ounce, finding little haven demand despite the geopolitical uncertainty.

JPMorgan's Michael Feroli said the "acute risk phase for the global economy should be over if tankers can begin moving again," though he cautioned that oil prices are likely to remain elevated as inventories are rebuilt and supply infrastructure repaired.

This article is for informational purposes only and does not constitute investment advice.