Oil prices surged while Treasuries fell following President Trump's rejection of Iran's proposal to reopen the Strait of Hormuz. WTI crude oil climbed to $89.04 a barrel, an increase of 8.6%, and Brent crude futures also saw a significant rise. This reversal comes after an earlier decline in oil prices when news of potential diplomatic talks between the US and Iran emerged, with WTI initially falling by over 2% and Brent settling at $87.77, down 9.31%.
The rejection of Iran's plan, which included conditions such as the lifting of sanctions and the release of $12 billion in frozen assets, dashed hopes for a quick de-escalation of tensions in the Middle East. Markets had initially reacted positively to reports of "very good" talks, leading to oil's longest losing streak in over a year. However, Trump's firm stance that Iran is only seeking a deal out of "economic desperation" invalidated earlier market optimism.
In the bond market, the 10-year Treasury yield, which had initially dropped to 4.649% on de-escalation hopes, surged again following Trump's rejection, reaching as high as 5.225% earlier in the day and settling around 5.165%. The 30-year Treasury yield also climbed to 5.44%, its highest level since 2004. This rise in yields reflects renewed concerns about energy-driven inflation and the Federal Reserve's potential need for further interest rate hikes, with markets now pricing in a 64% likelihood of a 25 basis point hike at the next FOMC meeting.
Equity markets showed a mixed reaction, with the S&P 500 rising a marginal 1.24 points, and the Nasdaq Composite slipping by 0.17%. The Dow Jones Industrial Average, however, added 262.98 points or 0.51%. While some sectors like chipmakers and AI stocks saw gains, the overall market struggled to digest the ongoing back-and-forth in geopolitical sentiment. Analysts note that the continued closure of the Strait of Hormuz, a crucial global oil chokepoint, continues to underpin elevated energy prices and inflation concerns.
