US Treasury securities experienced a decline in value on Friday, driven by intensifying geopolitical friction between Washington and Tehran that has reignited fears of sustained inflation. The core of the market’s anxiety lies in the potential for rising oil prices to permeate the broader economy, complicating the outlook for price stability.
President Donald Trump addressed the shifting diplomatic landscape on Friday, confirming that Iran had requested to continue discussions. The administration agreed to the request, but crucially noted that the ceasefire arrangement established in June was now "over." This update to the geopolitical status introduces a layer of uncertainty that has directly impacted investor sentiment toward fixed-income assets.
In the bond market, the benchmark 10-year Treasury yield rose 3 basis points, settling at 4.569% during afternoon trading. This increase followed a surge to a seven-week high recorded on Wednesday. Similarly, the 30-year bond yield climbed 1.8 basis points to reach 5.071%, also reflecting the seven-week peak touched earlier in the week. The 2-year note yield, a critical barometer for expectations regarding Federal Reserve interest rate decisions, advanced 5 basis points to 4.212%. This short-term yield had already touched its highest level in two weeks on Wednesday, underscoring the market's immediate reaction to the evolving situation.
The correlation between geopolitical risk and energy costs remains a central theme. US crude futures dropped 1.3% to $71.09 per barrel. Despite the daily decline, crude prices remain on track for a weekly gain of 3.5%, a trajectory driven by recent attacks in the region. Data indicates that daily tanker traffic through the strategically vital Strait of Hormuz has slowed as the conflict intensifies. Prior to this week’s escalation, traffic through the strait had been increasing, averaging 40 ships per day, which represented the highest level observed since the war began.
Treasury yields have now risen for a second consecutive week, marking a sustained period of pressure on bond prices. Over the last two weeks, the 10-year yield increased nearly 20 basis points, recording its largest two-week gain since mid-May. The 2-year yield climbed more than 12 basis points during the same period, marking the largest rise since the week of May 18. These movements highlight the market’s continuous reassessment of inflation risks and growth expectations in the face of external shocks.