U.S., eurozone and U.K. 10-year bond yields rose to eight-week highs as a new phase of escalation in the Middle East conflict prompted a jump in oil prices.
The U.S. launched its third consecutive night of strikes on Iran following President Trump's announcements of a multiday wave of attacks and a fresh blockade on Iranian trade in the Strait of Hormuz.
The escalation came ahead of two key events for markets--U.S. inflation data for June and Federal Reserve Chairman Kevin Warsh's Congress testimony later in the day. In addition, Fed Governor Christopher Waller said Monday an interest-rate hike should be on the table if inflation data show price pressures remaining firm.
The 10-year U.S. Treasury, the 10-year German Bund and 10-year U.K. gilt yields hit eight-week highs of 4.636%, 3.114% and 5.045%, respectively, according to Tradeweb.
Brent crude oil prices rose 3.5% to $86.22 a barrel, a significantly higher level compared with levels around $71 a barrel at the beginning of July.
"Brent's spike above $85 per barrel after Trump revived the blockade on Iranian vessels has bulldozed last week's stabilization story and dragged the tape back into inflation-shock territory," Tickmill Group market strategist Patrick Munnelly said in a note.
The current spike in oil prices and bond yields follows a period of relative calm in markets after a U.S.-Iran ceasefire. Trump declared the ceasefire over on Wednesday last week.
Rising tensions in the Middle East are dominating markets, said Mohit Kumar, global economist at Jefferies.
A further concern for investors is that Trump also suggested a fee equivalent to 20% of the cargo as compensation to the U.S. in exchange to ensuring safe passage for ships. This proposal is surprising, Kumar said.
"Till now, the U.S. and other Western countries had maintained that free maritime passage was a core principle and should be respected," he said.
The military escalation bodes ill for inflation, and could reinforce expectations of interest-rate hikes by the Federal Reserve and other major central banks.
The longer the U.S.-Iran hostilities persist, "the more hawkish the rates outlook will become," said Simon Ballard, chief economist at First Abu Dhabi Bank in a note.
"That said, we are cognizant that current price pressures are a consequence of supply side shock, rather than demand side distortions, and as such, we might argue that monetary policy is a fairly blunt tool for addressing current supply-driven market dynamics," he said.
Write to Emese Bartha at emese.bartha@wsj.com
(END) Dow Jones Newswires
July 14, 2026 04:41 ET (08:41 GMT)
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