Treasuries experienced a decline, initially slumping before recovering slightly, as investor focus shifted to the potential for surging energy prices to hinder economic growth. Yields were lower by approximately one basis point by 3:45 p.m. in New York, after having previously erased increases of six to seven basis points. This fluctuation followed an initial rise in yields alongside oil benchmarks, prompted by US President Donald Trump's aggressive rhetoric toward Iran in a speech.
This trend aligns with broader market reactions observed since earlier in the year. In March 2026, the Iran war had already threatened shipping lanes, leading to a surge in oil prices and heightened inflation fears, which significantly impacted bonds. The dollar also rose during this period, while stocks erased earlier losses. Furthermore, manufacturing expansion and increasing input prices contributed to the pressure on Treasuries, with 10-year yields seeing their largest advance since October.
The ongoing conflict in the Middle East has reignited inflation worries in the $30 trillion Treasuries market, as investors anticipate sustained high crude prices. While haven buying initially supported US government bonds, leading to their best month in a year amidst stock market losses and US-Iran tensions, this sentiment has since been overshadowed by inflation concerns. The instability surrounding US-Iran negotiations and the subsequent rise in oil prices have consistently influenced bond performance, with Treasury yields often moving inversely to the prospects of conflict resolution.
More recently, on June 1, 2026, Treasuries fell again as an impasse in US-Iran negotiations pushed oil prices higher, bolstering concerns that increased energy costs would trigger inflation and prompt the Federal Reserve to raise interest rates. Similarly, on April 7, 2026, Treasuries dropped amidst ascending oil prices ahead of a US auction and President Trump's deadline for Iran to agree to terms for ending American attacks. These declines lifted yields by as much as five basis points, with long-maturity tenors experiencing the most significant increases.
