Yields on 10-year U.S., German and U.K. government bonds rose to four-week highs on Wednesday, as renewed military escalation in the Middle East pushed oil prices higher.

The U.S. responded to Iran's recent attacks on ships near the Strait of Hormuz with airstrikes and blocked its ability to sell oil legally. Iran responded with counterattacks, according to a senior U.S. official, threatening to unravel an interim peace deal and drive up oil prices.

"It serves as a reminder of the fragility of the talks as well as underscores how deep the water between the parties still is," analysts at KBC Bank said in a note.

The 10-year U.S. Treasury yield rose to 4.565%, Tradeweb data showed. The 10-year German Bund yield rose to 3.044% in early trade, while the 10-year U.K. gilt yield hit a high of 4.909%. The price of a barrel of Brent crude oil rose 2.3% to $75.85.

Renewed escalations in the Middle East and higher oil prices could reignite concerns over inflation, potentially reinforcing expectations of interest-rate hikes by the Federal Reserve and the European Central Bank, which could lift bond yields further.

"The escalation follows renewed attacks on shipping routes around the Strait of Hormuz, turning what had been a fading risk premium back into a live inflation shock," Patrick Munnelly, market strategist at Tickmill Group, said in a note.

Higher oil prices also mean that "the likes of the ECB can't lower their guard just yet," KBC analysts said.

Eurozone money markets now fully price a 25 basis-point rate hike from the ECB in October, LSEG data showed.

"The feed-through to rates via front-end pricing is clear," Michiel Tukker and Benjamin Schroeder, senior rates strategists at ING, said in a note.

If nothing else, the latest events serve as a reminder that the memorandum of understanding that was signed between the U.S. and Iran in late June "was simply an agreement to talk about talks," analysts at First Abu Dhabi Bank said in a note.

"It was not a concrete ceasefire agreement," they said.

While the bond market reaction to the fresh escalation has been relatively significant, the dollar showed limited reaction. The DXY index, which measures the dollar's value against a basket of currencies, traded flat at 101.056, having reached a one-week high of 101.215 overnight.

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

July 08, 2026 04:05 ET (08:05 GMT)

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