U.S. Treasury Yields Inch Up Amid Israel-Iran Tensions and Oil Price Surge

U.S. Treasury yields nudged higher on Monday as global markets remained jittery over the intensifying conflict between Israel and Iran. Investors reacted to a fresh wave of deadly air strikes exchanged between the two nations, prompting a cautious sentiment across financial markets. The yield on the 2-year Treasury rose by nearly 2 basis points to 3.974%, while the 10-year benchmark climbed 1 basis point to 4.432%. Bond prices and yields move in opposite directions, and even small shifts reflect significant investor sentiment during volatile geopolitical events.

The spike in yields follows a sharp climb on Friday, when Israel launched airstrikes targeting Iranian sites allegedly linked to nuclear development. This escalation triggered a global market reaction — oil prices jumped, the U.S. dollar and gold saw gains, while stock markets experienced declines. The conflict has shown no sign of de-escalation as the weekend passed, with increasing casualties and the cancellation of scheduled nuclear talks with Iran.

Oil prices remained volatile but edged higher on Monday, with West Texas Intermediate crude rising 0.7% to $73.50 per barrel and Brent crude up 0.48% to $74.64. Reports from Iranian state media indicated that Israeli drones struck the South Pars gas field in southern Iran. Such attacks have raised concerns about the stability of energy supplies and their broader economic implications.

Rising oil prices have reignited investor fears about inflation in the U.S. Though the latest consumer price index for May came in cooler than expected, the inflation outlook remains uncertain, particularly as energy costs threaten to rise further. Additionally, recent tariff policies from the White House have already added to inflationary pressures, creating an uneasy backdrop for market participants.

The Federal Reserve is scheduled to hold a key policy meeting this week. According to the CME FedWatch Tool, markets are pricing in a more than 96% likelihood that the Fed will keep interest rates unchanged. However, geopolitical risks and inflationary threats are expected to weigh heavily on discussions, as policymakers navigate a fragile global and domestic economic environment.

Source: CNBC