Bond yields surged past 4.6% last week as traders dumped long-term government debt over fears of energy-driven inflation. The 10-year Treasury yield, which influences mortgage rates and auto loans, jumped nearly 24 basis points in five days. The sell-off reflects growing concern that no end is in sight to the war in Iran and oil prices remain stuck above $100 a barrel.
The Iran conflict has kept the Strait of Hormuz effectively closed, blocking major oil shipments and disrupting global energy supply. Brent crude traded at roughly $70 before the war but now hovers near $110 a barrel. That price swing is putting pressure on consumers through higher borrowing costs.
The yield pressure builds
Daleep Singh, chief global economist at asset manager PGIM and former deputy national security adviser, told CNBC he expects the 10-year Treasury yield to reach 5% in the coming months. "We're on the cusp of a bond-vigilante trade," Singh said, referring to when investors collectively demand higher yields as compensation for perceived risk.
Singh laid out the cascade: As fiscal deficits increase indefinitely, bond investors require higher yields. That steepens the yield curve across developed economies. The U.K., Japan, and other markets are all seeing yields climb. Higher Treasury yields ripple into consumer debt. When a 10-year Treasury climbs 24 basis points in a week, mortgage rates and credit card rates follow.
Stock markets have felt the whip. The S&P 500 fell 0.1% Monday, its second loss since hitting an all-time high the week before. South Korea's Kospi sank 3.5% by midday Tuesday as uncertainty over Iran roiled global equity demand. Tech shares tracked losses overnight on Wall Street, with Samsung and SK Hynix sliding on oil and inflation jitters.
President Trump said he was holding off on a planned military strike on Iran because serious negotiations are underway. If those talks fail and the Strait remains closed through the summer, Singh warned of a lingering $80 to $100 oil risk premium "for the foreseeable future." The 10-year Treasury yield needs to break below 4.59% for bond volatility to ease.
