The Iran War Effects: Disturbing Signal From The Bond Market

Since the onset of the war with Iran, nominal 10-year Treasury yields have risen, driven primarily by increases in real yields while inflation expectations (breakevens) remain well anchored. The rise in real yields implies market concern about the US's fiscal ability to sustain a longer-term conflict, signaling a risk-off re-pricing in core sovereign bond markets.

Analysis

Since the onset of the war with Iran, nominal 10-year Treasury yields have risen, driven primarily by increases in real yields while inflation expectations (breakevens) remain well anchored. The rise in real yields implies market concern about the US's fiscal ability to sustain a longer-term conflict, signaling a risk-off re-pricing in core sovereign bond markets.