Oil prices surged Tuesday after the U.S. military announced further strikes against Iran, deepening inflation concerns and extending an earlier market sell-off in stocks and bonds.
The global Brent crude oil benchmark climbed more than 5%, to about $95 a barrel, while U.S. crude prices climbed nearly 6%, to nearly $91 a barrel.
The S&P 500 dropped 0.71%, while the tech-heavy Nasdaq fell about 1%.
The yield on the 10-year Treasury note, which represents the return investors demand for lending money to the U.S. government for a decade, hit its highest level since January 2025, rising to about 4.8%.
The 10-year yield serves as the benchmark borrowing rate for most common consumer lending in the U.S. economy — mortgages, auto loans and credit card debt. That means average consumers are likely to face higher borrowing costs in the weeks and months ahead.
Stocks and bonds had already come under pressure earlier in the day from a global bond sell-off and fears that an interest-rate hike this month by the Federal Reserve would tamp down economic growth.
Fed Chairman Kevin Warsh indicated last week that the central bank is uncomfortable with the current rate of inflation, remarks investors interpreted to mean the Fed is likely to raise its key interest rate in response. Warsh said business investment, led by AI spending and consumer demand, remains brisk.
The rise in U.S. yields Tuesday paralleled similar moves around the world that were even more severe. Japanese benchmark bond yields hit a record high, while 30-year U.K. government bonds rose to their highest level since 1998.
The tandem market actions reflect similar issues playing out across developed nations: Widening deficits, rising debt loads and tight global oil supplies are all contributing to higher inflation.
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At the same time — despite Tuesday’s move — investor appetite for riskier assets like stocks continues to climb. That makes government bonds — which are seen as “safe haven” assets because of their guaranteed payout structure — relatively less appealing, putting further upward pressure on their yields.
Not all market observers believe that yields are rising for “bad” reasons like rising inflation risks, however.
Matthew Klein, author of The Overshoot newsletter, argues in a new note that rising government bond yields are, on balance, a sign of reinvigorated economic health after more than a decade of sluggish growth.
Led by investments in artificial intelligence, alongside increased government spending, the U.S. and developed economies writ large have entered a new stage of growth, he writes, one that makes government bonds relatively less attractive investments compared with stocks.
“Today’s rates are obviously too high only if inflation and growth are both poised to slow sharply from here,” he writes. “That is certainly possible, but it would (probably) only happen if the U.S. fell into a downturn.”
In other words, if yields started to fall again, it could signal an economic slowdown.
Treasury Secretary Scott Bessent dismissed concerns about rising bond yields Monday, arguing that, measured over President Donald Trump’s entire second term, they are flat.
Bessent said on CNBC that he believes U.S. productivity growth is poised to neutralize concerns about rising inflation, and he dismissed high global oil and gas prices as merely a temporary supply shock, rather than a long-term shift.
“We will get on the other side of the Iran conflict,” he said.
The longer inflation remains the prevailing driver of market moves, the likelier it is that the Federal Reserve will take action by hiking benchmark interest rates.
By raising the cost to banks of borrowing money, the Fed can slow the rate of inflation by effectively forcing banks to raise their own interest rates for loans. As loans get more expensive, fewer businesses and consumers can afford them, and the net effect is a slowdown in economic growth.
Tuesday’s moves lower in the stock market most likely reflect the expectation of a rate hike, experts say.
“Another global rise in interest rates and do stocks now finally care?” wrote Peter Boockvar, chief investment officer of One Point BFG Wealth Partners. “I think it’s for sure gaining more attention.”
