By Emese Bartha and Renae Dyer
Investors sold government bonds as surging oil prices due to the escalating Middle East war reignited inflation fears, while the dollar and Swiss franc rose sharply on demand for safe-haven assets.
Oil prices surged above $100 a barrel as traffic through the Strait of Hormuz has all but ground to a halt. Intense airstrikes on Tehran have continued, while Iran appointed Mojtaba Khamenei, son of the slain Ayatollah Ali Khamenei, as its new supreme leader in a sign that Iran is unlikely to back down from its hardline stance.
"With global financial markets seemingly shifting to a full-blown war footing this morning, the readjustment in risk asset (and oil) pricing has been dramatic," analysts at First Abu Dhabi Bank said.
Bond yields jumped as higher oil prices caused investors to slash expectations for interest-rate cuts in the U.S., eurozone and U.K.
The 10-year U.S. Treasury yield hit a one-month high of 4.216% in overnight trade. The 10-year German Bund yield jumped to a 12-month high of 2.931%, according to LSEG. The 10-year gilt yield rose 13 basis points to a 6-month high of 4.798%, Tradeweb data showed.
"The oil shock saw the rates market pivot abruptly to trading along a hawkish policy dimension," Goldman Sachs strategists said in a note.
The DXY dollar index hit a three-month high of 99.695 overnight as investors sought safe havens and higher oil prices reduced the prospect of further Federal Reserve interest-rate cuts. Higher oil prices could also boost the U.S. economy as the country is a net oil exporter.
The Swiss franc, which is traditionally viewed as a safe haven, rose to its highest level against the euro since 2015, with the euro hitting a low of 0.8979 francs in early European trade, LSEG data showed. The Norwegian krone, which benefits from higher oil prices as Norway is an oil exporter, reached a two-and-a-half-year high of 11.0917 per euro overnight.
Brent crude oil soared to $119.50 a barrel before retreating, but still staying above $100, and WTI crude has also jumped above $100 a barrel.
"The U.S. dollar and Swiss franc are strengthening due to safe-haven demand, while the euro is weakening because Europe is more exposed to higher energy prices as a large importer," said Lale Akoner, global market strategist at eToro.
Money markets currently price in 36.5 basis points of interest-rate cuts by the Federal Reserve this year, and they anticipate 50 basis points of interest-rate hikes by the European Central Bank, according to LSEG. Before the start of the war, markets had priced about 65 basis points of Fed rate cuts and no change in ECB policy rates. Markets have also started to price in a risk of interest-rate hikes by the Bank of England.
The escalation of the conflict has raised concerns that the war will be prolonged. Last week, many analysts had assumed it could be short-lived.
"This was meant to be a surgical strike," Edmond de Rothschild Asset Management said in a note.
"It is now beginning to look like a protracted operation that could turn into a regional war of attrition, thereby reinforcing our fifty percent probability of a war that could drag on and culminate in Donald Trump finding an agreement with [former Supreme Leader Ayatollah] Ali Khamenei's successor."
Write to Emese Bartha at emese.bartha@wsj.com and Renae Dyer at renae.dyer@wsj.com
(END) Dow Jones Newswires
March 09, 2026 06:12 ET (10:12 GMT)
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