War with Iran Pushes US Treasury Yields Higher

Rising oil prices and renewed geopolitical tension after the war with Iran have lifted expectations that the Federal Reserve will keep policy rates elevated or raise them further. Traders are pricing a roughly 36 % chance that the Fed will hike rates at its next policy meeting, according to CME FedWatch. Higher yields reflect investors’ demand for compensation against inflation-driven erosion of returns and the risk of expanded government borrowing.

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• The 10-year U.S. Treasury yield rose four basis points to 4.71 %, its highest level since early 2025.

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• Brent crude breached $100 per barrel, adding upward pressure on yields.

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• Mortgage rates have climbed to their highest point since the conflict began, and the 30-year Treasury yield in May reached its strongest level since 2007.

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• The war has cost the United States $37.5 billion, as stated by Defense Secretary Pete Hegseth.

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Kevin Warsh, who assumed the Fed chairmanship in May, has pledged reforms and assembled task forces to review communications, inflation frameworks, and balance-sheet policy. Analysts such as Tom Tzitzouris of Baird Strategas argue that Warsh’s approach is the “biggest driver” behind current yield movements. Climate-economics expert Hamad Hussain noted that without de-escalation of conflicts around the Strait of Hormuz and the Red Sea, oil-price risks remain skewed upward.

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• “That’s probably the biggest driver as of right now, the Kevin Warsh story and how he approaches his position as Fed chair,” — Tom Tzitzouris, head of fixed income research at Baird Strategas

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• “That will exhibit itself with higher interest rates, the market getting rattled a little bit, people talking about constantly remember the bond market, the bond market vigilantes,” — Jamie Dimon, jpmorgan chase CEO

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• “Unless signs of de-escalation across the various conflicts emerge, the risks to oil prices are skewed to the upside,” — Hamad Hussain, climate and commodities economist at Capital Economics

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Higher Treasury yields increase borrowing costs for consumers and businesses, influencing mortgage rates, corporate financing, and broader economic activity. The combination of elevated energy prices, war-related fiscal outlays, and uncertainty over the Fed’s policy path is prompting investors worldwide to demand higher returns on sovereign debt, a trend that could reverberate through global financial markets.

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