US 30Y Yield at 2007 Highs as Iran Shock Puts 37% Odds on a 2026 Fed Hike

Bond markets are sending urgent warning signals as the Iran conflict escalates and energy supply disruptions mount. US 30-year Treasury yields have climbed to their highest level since 2007, a dramatic repricing that reflects both near-term fiscal concerns and longer-term inflationThe rate at which prices rise across an economy. and growth risks. This yield spike has been accompanied by a sharp repricing of Fed rate expectations: markets are now pricing in roughly a 37 percent probability of a Fed rate hike in 2026, a material shift from the prior consensus of rate cuts.

The macroeconomic spillovers are spreading globally. The International Monetary Fund cut its growth forecast for France as the Iran war shock hits economic activity and uncertainty builds. The European Commission warned that the euro area will slow markedly while suffering the fastest inflationThe rate at which prices rise across an economy. since 2023 as it succumbs to the energy-cost surge from the Middle East conflict. French business activity shrank at the quickest pace in five and a half years, while euro-zone business activity contracted at its fastest pace since 2023. Germany's private-sector activity shrank for a second straight month, raising the risk that Europe's largest economy is succumbing to the knock-on effects of the war.

Commodities have reacted sharply. Oil prices are near $100 a barrel with market participants increasingly pricing crude to be capped near that level over the next year as demand slows to counter supply disruptions. A spike in fertilizer costs in Brazil is hitting farmers in an agriculture powerhouse at the worst possible time. Turkey liquidated almost all of its US Treasury holdings in March as it stepped up efforts to support its currency during the war's first month. Sri Lanka's rupee weakened to a three-year low, and emerging Asian markets are under acute pressure.

The debate centers on the durability of this repricing. Some skeptics argue that geopolitical risk premiums may unwind if Iran talks progress (Trump has proposed resolution timelines). Others contend that inflationThe rate at which prices rise across an economy. from sustained energy elevation will force the Fed to hike much more than markets have priced, especially if fiscal spending remains elevated. Bond vigilante sentiment is clearly resurfacing, with Jamie Dimon warning that rates could climb much higher from current levels.