Oil Surpasses $100, Treasury Yields Spike as Trump Ties Iran War End to Midterms

Crude oil prices and U.S. Treasury yields climbed to their highest levels in years on Wednesday after President Donald Trump suggested the ongoing war with Iran would not conclude until after the November midterm elections, stoking investor fears of extended energy price pressure and inflation.

Oil and Bonds Under Pressure

The market reaction was swift, with crude oil closing above $100 per barrel for the first time since late May. The surge came amid what a Reuters report described as the most intense series of attacks on shipping in the Gulf since the conflict began six months ago. Six-month Brent crude futures also advanced, nearing $90 per barrel.

In the bond market, the yield on the benchmark 10-year Treasury note hit a three-year high, approaching the key 5% milestone. The sell-off was exacerbated by disappointment over a Treasury Department bond buyback operation. The announced $6 billion purchase of longer-dated bonds on Thursday fell short of some investor expectations for a more aggressive intervention.

White House Signals and Fiscal Stimulus

In a primetime speech on Wednesday, President Trump linked an end to the war and relief from high fuel prices to the outcome of the midterm elections. Further signaling a prolonged conflict, The Wall Street Journal reported that senior White House advisers have privately warned the president that the war could extend through the rest of his term.

Ad

Adding to concerns about government borrowing, Trump also promised $5,000 checks for every American if Republicans win the midterms. Such a plan would cost the Treasury over $1 trillion, likely financed through new debt issuance, which could place further upward pressure on interest rates.

Central Banks Eye Inflation

Investors are now turning their attention to key economic data and central bank decisions. The U.S. will release its Producer Price Index (PPI) for August on Thursday, providing a fresh reading on inflation. The data will be closely watched ahead of the Federal Reserve's next policy meeting.

Meanwhile, the European Central Bank (ECB) is widely expected to announce a quarter-percentage point interest rate hike to 2.5% on Thursday. The move comes as European natural gas futures also reached a three-year high, underscoring the global nature of the energy-driven inflation shock.