Bond Yields Surge Amid Renewed US-Iran Hostilities

A broad sell-off in government bonds unfolded on Tuesday morning, pushing long-dated U.S. Treasury yields to multi-decade highs. The market shift followed the collapse of a diplomatic window between Washington and Tehran, with both sides rejecting further peace talks and new threats of military escalation emerging.

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President Donald Trump ruled out extending a cease-fire with Iran, while Tehran issued fresh warnings of escalation. In the same period, a cargo vessel was struck by a projectile while transiting the Strait of Hormuz, reviving concerns that the waterway could remain effectively closed for the duration of the six-month conflict. The strait’s importance to global oil shipments has amplified worries about prolonged higher energy prices and inflationary pressure.

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• U.S. 30-year Treasury yield rose to 5.335%, the highest level since 2002.

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• The 20-year note reached a post-2006 high, and the benchmark 10-year yield climbed to 4.748%, its highest since 2007.

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• International yields also spiked: Germany’s 10-year bund hit a 15-year high, France’s reached its highest since 2008, and Japan’s 10-year yield rose to 2.941%, a 40-year peak.

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Dan Coatsworth, head of markets at AJ Bell, said the failure to secure a cease-fire has placed inflation fears and the prospect of further interest-rate hikes at the forefront of investors’ concerns. Deutsche Bank’s Jim Reid noted that the bond-market decline reflects not only expectations of higher rates but also worries about elevated government borrowing and the risk premium demanded for holding long-dated sovereign debt.

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• “Rising long-dated bond yields are not driven solely by expectations of higher interest rates and inflation fears. They can also reflect concerns around high levels of government borrowing and investors demanding greater compensation for the risks of holding long-dated government bonds.” — Deutsche Bank's Jim Reid

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