Oil Hits $100 as Iran War Rattles Bond Market: Treasury Yields Surge, Borrowing Costs Rise

Oil has pushed back above $100 a barrel, and the bond market has taken fright. Brent crude jumped 7% on Thursday to close at $100.69, its highest since before the tentative peace deal with Iran last month. Within hours, the yield on the 10-year US Treasury note had climbed to 4.71%, a level not seen since January 2025.

The two moves are linked. Higher oil feeds inflation, and inflation is what bond investors fear most, because it eats the value of the fixed payments they receive. When that fear rises, they demand a higher return to lend, and yields go up.

What Set It Off

The immediate trigger was a fresh burst of violence. Reports of attacks on tankers off the Saudi coast, together with renewed threats of escalation from both Washington and Tehran, ended what was left of a fragile calm.

Oil responded first. Brent rose 7% in a single session, and West Texas Intermediate, the US benchmark, gained 6% to $92.19. Both are now on course for one of the sharpest monthly rises in a decade. The bond market followed, as the chart below shows.

The relationship has held all year. In the weeks before fighting broke out at the end of February, the benchmark rate sat below 4%. It has climbed steadily as the conflict has dragged on, and each flare-up has pushed it higher.

The 30-year Treasury has moved even further. Its yield reached 5.17% on Thursday, the highest since 2007, shortly before the onset of the global financial crisis. Longer-dated bonds are inherently more sensitive to inflation, because there is far more time for rising prices to erode the value of what they eventually pay out.

Why It Matters Beyond Wall Street

This is not an abstraction confined to trading desks. The 10-year Treasury yield sets the benchmark for borrowing costs across the American economy, and its influence reaches ordinary households directly.

Mortgage rates track it closely, and last week they hit their highest level since the war began. Car loans and credit card rates follow the same path. The effects of a bond market repricing are set out below.

The scale is considerable. The US Treasury market is worth roughly $30 trillion, which makes it the largest bond market anywhere in the world, and the reference point against which almost every other loan is ultimately priced.

There is a further complication. Traders are also weighing what the Federal Reserve does next under Kevin Warsh, who took over as chairman in May. Some now expect the central bank to raise rates rather than cut them, which would push borrowing costs higher still.

What Investors Are Watching

The consensus among strategists is blunt: yields will not fall until oil does. Analysts have described levels above 4.5% on the 10-year as a danger zone, a sign that anxiety about inflation among bond investors is unusually high.

That makes the path of the conflict the single biggest variable. One commodities economist has warned that without visible signs of de-escalation, the risks to oil prices point upwards rather than down.

Confidence in longer-dated government debt has also been shaken. The chief executive of JPMorgan Chase said this week that he would not buy 10-year Treasuries at current prices, citing concerns about inflation and the size of government deficits.

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