Global Bond Yields Stabilize After U.S.-Iran Clash Triggers Sharp Sell-Off

U.S. Treasury and eurozone government bond yields stabilized on Friday, bringing a halt to a sharp sell-off earlier in the week driven by fears that a military confrontation between the United States and Iran could reignite global inflation.

The pause gives fixed-income markets a moment to consolidate after investors rapidly repriced for higher risk following the collapse of a ceasefire between Washington and Tehran.

Yields Hold Near Multi-Week Highs

After suffering their largest two-day spike in months on Wednesday and Thursday, benchmark government bond yields hovered near recent peaks. According to market data on Friday:

• The yield on the benchmark 10-year U.S. Treasury note eased slightly to 4.54%, holding near a two-month high.
• The 2-year U.S. Treasury yield, which is sensitive to near-term interest rate expectations, stood at 4.18%.
• Germany's 10-year Bund yield, the benchmark for the eurozone, was little changed at 3.033%, near a seven-week high.

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Geopolitical Tensions Reshape Inflation Outlook

The sudden market repricing was triggered by an exchange of military strikes between the U.S. and Iran, which effectively ended a fragile truce established on June 17. The escalation has severely disrupted maritime transit through the critical Strait of Hormuz, a key channel for global energy supplies.

This disruption sent Brent crude oil prices surging back toward $78 a barrel, a development that threatens to upend recent progress on curbing inflation. Prior to this week's events, bond markets had rallied on the assumption that cooling inflation would allow the Federal Reserve and other central banks to maintain a neutral policy stance. Those assumptions are now being seriously questioned as the prospect of a new energy-driven inflation shock emerges.