Key Takeaways:
U.S. Treasury yields rose Monday as Iran's declaration that the Strait of Hormuz is closed pushed crude above $73 a barrel, reviving inflation concerns and deepening a bond-market selloff that has erased nearly 3% from 10-year note prices this year.
The 10-year Treasury yield edged higher as Iran's closure of the Strait of Hormuz sent oil surging as much as 5%, reviving inflation fears that have already pushed the benchmark note down 2.95% year to date. The 10-year note fell 0.04% to $108.984, extending its decline toward the bottom of a 52-week range spanning $108.563 to $114.187.
"The market is pricing in a sustained energy supply shock that complicates the Fed's path," said Elena Fischer, geopolitical risk analyst at Edgen. "Each dollar higher in crude adds roughly 0.1 percentage point to headline CPI."
WTI crude jumped 3.30% to $73.77 a barrel after Iran declared the strategic waterway — which handles about 21% of global oil trade — closed. Brent crude rose 3.26% to $78.49. Gold slid 0.98% to $4,073.20 as forced liquidation across asset classes offset haven demand, while silver dropped 2.34% to $58.760. S&P 500 futures fell 0.29% to 7,598.00, and Nasdaq 100 futures lost 0.96% to 29,743.25, with the tech-heavy index more than tripling the Dow's 0.02% decline.
The escalation threatens to reignite inflation just as the Fed had signaled a potential easing cycle. If oil sustains above $75, economists estimate it could add 0.3 to 0.5 percentage points to headline CPI over three months, potentially delaying rate cuts into 2027. The last time yields rose this sharply on a geopolitical trigger was in October 2023 after the Hamas attack on Israel, when the 10-year yield climbed 35 basis points over two weeks before reversing.
Oil's Inflation Feedback Loop
The Strait of Hormuz closure represents the most direct threat to global energy supplies since the 2019 Abqaiq-Khurais attacks on Saudi Aramco facilities, which temporarily knocked out 5.7 million barrels per day of production. Iran's move came after a weekend of intensified U.S.-Iran strikes, with both sides exchanging new rounds of attacks. RBOB gasoline futures rose 2.08% to $3.0466 a gallon, while heating oil gained 3.61% to $3.6814, signaling the pass-through to consumer energy costs is already underway.
Cross-Asset Contagion
The equity selloff was concentrated in rate-sensitive sectors. The Nasdaq 100 futures decline of 0.96% reflected growth-stock vulnerability to higher discount rates as bond yields rose. The euro edged up 0.11% to $1.1459, while the Japanese yen weakened 0.27% to $0.6199, suggesting the dollar drew support from safe-haven flows despite the Treasury selloff. Trading volume in 10-year note futures stood at 256,420 contracts, or 14% of the 65-day average of 1.89 million, indicating the move was driven by positioning adjustment rather than broad-based liquidation.
The last comparable geopolitical risk event, the February 2022 Russia-Ukraine invasion, saw the 10-year yield initially fall 20 basis points on a flight to safety before reversing as oil-driven inflation expectations reset higher. A similar pattern this time would imply further upside pressure on yields if crude prices remain elevated.
This article is for informational purposes only and does not constitute investment advice.
