Treasuries Plummet as Iran Tensions Spark Inflation Fears, Oil Rises

U.S. Treasury yields have surged across the curve, with the 10-year benchmark breaching 4.8% on heightened geopolitical risk linked to renewed hostilities in the Middle East. The rally in yields reflects a market shift away from safe-haven assets, as investors reassess inflation risks tied to disrupted energy flows. The 30-year bond yield rose to 5.12%, its highest level since early 2023, signaling growing anxiety over long-term rate pressures. The spike in bond yields coincided with a 4.3% jump in crude oil futures (CL=F), pushing prices to $89.40 per barrel—the highest since November 2023. This surge is directly tied to fears of supply disruption from the Strait of Hormuz, a critical chokepoint for global oil trade. Defense stocks also saw gains, with Lockheed Martin and Raytheon Technologies posting double-digit percentage increases as market participants anticipate heightened military spending. Implied inflation expectations embedded in Treasury Inflation-Protected Securities (TIPS) rose to 2.95% over the next decade, the highest level in over 18 months. The VIX index, a measure of market volatility, jumped to 27.6—the highest since mid-2024—reflecting a broad-based flight from perceived safety in fixed-income instruments. The Treasury sell-off has implications for the Federal Reserve’s policy trajectory, with market pricing now indicating a 60% chance of a rate hike in June, up from 40% a week prior. Financial institutions, particularly those with large fixed-income portfolios, are adjusting hedging strategies amid the volatility. The repricing of risk has also put pressure on tech stocks, which have seen a 3.2% pullback in the past 48 hours.