Iran War Locks Strait of Hormuz; Oil Above $75, Pushing Treasuries to Multi-Year Yields

The war in Iran and its spillover into the Strait of Hormuz remains the dominant macro tail-risk driving commodity prices and global rates higher. With the critical chokepoint effectively closed, roughly 20% of the world's seaborne crude oil flows have been disrupted, forcing prices higher and keeping global inflationThe rate at which prices rise across an economy. expectations elevated. Oil is tracking for weekly gains and remains above $75 per barrel, a level that has sparked fresh inflation concerns across Treasury, JGB, and eurozone bond markets.

The inflationThe rate at which prices rise across an economy. signal is clear in the data. Japan's corporate goods prices surged by the most in 12 years in April, and US inflation has re-accelerated on energy components. This is forcing central banks into a bind: the European Central Bank's Yannis Stournaras warned that persistently high oil could force a rate hike, even as growth slows. Japan's 10-year yields are at multi-year highs as investors flee global bond markets and reassess rate-cut expectations. Treasuries are sliding on the same fears, with the bond market now pricing in a longer period of higher rates rather than near-term Fed easing.

For equities, the impact is twofold. Defensive sectors like utilities and consumer staples are pressured by higher rates and the expectation of slower growth. Energy stocks, however, are benefiting from the price floor, and defensive positioning is lifting. Emerging markets are the hardest hit, as higher US rates widen the carryIncome earned from holding a position over time.-trade unwind and pull capital back into dollar assets. The dollar itself is firm, benefiting from the rate differential with other currencies and safe-haven bid amid geopolitical risk.

The critical wildcard: how long before oil supply disruptions force OPEC+ or non-OPEC producers to materially increase output, or when diplomatic efforts resolve the Iran situation. Some traders argue the market is pricing in only a 3-6 month disruption window, which means any extension of the conflict could see oil spike toward $90-100. Alternatively, a sudden peace deal or emergency SPR release could trigger a sharp reversal, punishing those crowded into the energy complex.