Treasury yields rise as oil gains and U.S.-Iran tensions fuel inflation fears

• The 30-year Treasury yield rose to around 5.322%, hovering near its highest level since 2002, while the 10-year yield increased to 4.736%
• Iran ruled out extending the 60-day U.S. peace deal deadline and threatened to take an 'offensive stance' if diplomacy fails, raising fears of extended closure of the Strait of Hormuz
• Global bond yields are surging across developed markets, with Japan's long-dated yields near 40-year highs, Germany's 30-year yield at the highest since 2011, and similar multi-decade highs in the UK and France

Summary

Key Developments:

U.S. Treasury yields surged on Tuesday, with long-dated yields reaching their highest levels in over two decades amid escalating U.S.-Iran tensions and renewed inflation concerns.

Key Data Points:

• 30-year Treasury yield rose over 1 basis point to approximately 5.322%, approaching its highest level since 2002
• 10-year note yield increased more than 1 basis point to 4.736%
• 2-year note yield remained flat at 4.186%
• One basis point equals 0.01%; yields and prices move inversely

Market Catalyst:

The 60-day U.S.-Iran peace deal deadline expired Monday, with Iran ruling out any extension according to state media. A senior Iranian official indicated Tehran would adopt an offensive stance if diplomacy fails. Investors are pricing in an extended closure of the Strait of Hormuz, a critical oil shipping route.

Global Market Impact:

Inflation fears are driving government borrowing costs higher worldwide:

• Japan's long-dated government bonds approached 40-year highs reached in May
• Germany's 30-year bond yield hit its highest level since 2011
• UK 30-year yields neared multi-decade highs
• French 30-year yields reached post-2008 highs

Market Reaction:

Deutsche Bank noted that both bonds and equities weakened over the past 24 hours due to negative geopolitical headlines from the Middle East, with no single catalyst but mounting concerns over prolonged regional instability.

Upcoming Data:

Investors await July import/export pricing figures, housing starts, and pending home sales data on Tuesday.