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Global Bond Yields Stabilize After U.S.-Iran Hostilities Trigger Sharp Sell-Off
U.S. Treasury and eurozone government bond yields held steady on Friday, providing a moment of calm for markets after experiencing their most significant two-day spike in months. The sharp sell-off was triggered by an escalation in military hostilities between the United States and Iran, fueling fears of a new wave of energy-driven inflation.
Geopolitical Shock Rattles Markets
The sell-off in government bonds, which sent yields soaring, came after Washington and Tehran exchanged military strikes, effectively collapsing a fragile June 17 ceasefire. According to reports, the escalation involved U.S. strikes on Iranian targets and retaliatory actions by Tehran against American assets in the region.
The market reaction was swift, with investors repricing risk in fixed-income assets. The yield on the benchmark 10-year U.S. Treasury note eased slightly to 4.54% on Friday but remained near a two-month high. Similarly, Germany’s 10-year Bund yield, the benchmark for the eurozone, held near a seven-week high at 3.033%.
AdInflation Fears Re-Emerge
The primary driver of the market shift is the threat to global energy supplies. The conflict has severely disrupted maritime transit through the Strait of Hormuz, a critical chokepoint for oil shipments. This disruption caused Brent crude prices to surge back toward $78 a barrel, altering near-term inflation projections.
Prior to this week's events, bond markets had been rallying on the assumption that moderating inflation would allow major central banks to maintain a neutral policy stance. The sudden spike in energy costs now puts that assumption in doubt. The two-year U.S. Treasury yield, which is highly sensitive to Federal Reserve rate expectations, hovered at 4.18% as traders recalibrated their outlook.