Global Bonds Plummet as U.S.-Israel Airstrikes in Tehran Fuel Inflation Fears

Global bond yields spiked sharply on March 3, 2026, as fresh military action in Tehran rattled financial markets. The U.S. and Israel conducted precision strikes on strategic sites in central Tehran, including a complex near Nilufar Square, according to on-the-ground reports. The attacks, attributed to a joint operation targeting dual-use infrastructure, caused significant structural damage and heightened fears of broader regional conflict. The geopolitical escalation disrupted the fragile equilibrium in global markets, eroding the traditional safe-haven appeal of government bonds. The 10-year U.S. Treasury yield climbed to 4.78%, its highest level since late 2023, reflecting growing inflation expectations. Meanwhile, the CBOE Volatility Index (^VIX) surged 22% to 28.9, signaling a sharp increase in market uncertainty and risk aversion. Energy markets reacted swiftly to the conflict. Crude oil futures (CL=F) jumped 7.3% to $92.40 per barrel, driven by concerns over potential supply disruptions in the Strait of Hormuz and retaliatory actions by Iran. The surge in oil prices directly amplifies inflation risk, particularly for import-dependent economies, and raises pressure on central banks to maintain restrictive monetary policies. Bond investors, previously seeking refuge in long-dated Treasuries amid economic slowdown fears, now face a recalibration of risk. The rally in risk assets has stalled, and the flight to quality has reversed. Market participants are now pricing in a higher probability of sustained inflation and delayed rate cuts, particularly in the U.S. and Europe, where bond yields on 10-year government securities rose across major markets.