Iran War Triggers Multi-Year Bond Selloff: Treasury Yields at Decade Highs, Energy Up 20%

The Iran conflict has morphed into a systemic tail risk for global bond and equity markets. Oil prices have surged alongside geopolitical uncertainty, pushing Brent crude toward the mid-$80s range. In response, Treasury yields across the curve have marched higher, with the 10-year benchmark climbing to levels not seen since 2022. Global government bonds are being sold across the board: UK gilts hit six-month lows, German Bunds suffered heavy losses, and Japanese JGBs also fell despite the BoJ's efforts to support them.

The selloff reflects a loss of confidence in the "lower for longer" rates narrative that dominated early 2026. InflationThe rate at which prices rise across an economy.-linked bonds suddenly look attractive again after years of underperformance. Oil importers like India, Turkey, and Pakistan are experiencing simultaneous energy shocks and currency pressure. India has already hiked fuel prices for the first time in four years; Pakistan is pivoting to Chinese yuan-denominated debt and LNG shipments from the Persian Gulf. Conversely, oil exporters like Nigeria and Saudi Arabia are seeing revenue tailwinds.

Equity markets absorbed the shock on Friday with a broad retreat in US and Asian indices. Tech stocks, which had led the April-May rally on AI enthusiasm, were hit hardest as the higher-rate environment undercuts software valuations. Energy stocks rallied but lagged the broader market decline. The S&P 500 futures fell 1% intraday, signaling that this is not a simple rotation into cyclicals; rather, it reflects genuine risk-off sentiment.

The dilemma for policymakers is acute. The Fed now faces pressure to hold rates steady (or even hike) to defend against imported inflationThe rate at which prices rise across an economy., yet equity markets are pricing in Fed accommodation. Kevin Warsh takes the chair today after Jerome Powell's final day; his first test is navigating this collision between inflation and growth. SocGen's Albert Edwards calls inflation "double-digit" incoming; RBC's Calvasina warns that a 5% Treasury yield would challenge equity bulls.