U.S. Treasury yields moved higher on Tuesday as escalating tensions in the Middle East pushed oil prices higher and renewed concerns over inflation and the outlook for interest rates.

The benchmark 10-year Treasury yield rose more than 3 basis points to 4.792%, after earlier reaching its highest level since January 2025. The 30-year yield gained more than 1 basis point to 5.266%, while the 2-year yield climbed over 4 basis points to 4.398%.

The rise in borrowing costs came as geopolitical risks intensified. U.S. Central Command said American forces had begun strikes on Islamic Revolutionary Guard Corps targets in Iran. The latest military action followed earlier U.S. strikes, while a tanker was also reportedly hit by unidentified projectiles near Oman in the Strait of Hormuz.

Energy markets reacted sharply to the escalation. West Texas Intermediate crude settled 5.2% higher at $90.22 per barrel, while Brent crude gained 4.6% to $94.65. With uncertainty surrounding the reopening of the Strait of Hormuz, higher energy prices are adding to concerns that inflation could remain elevated.

Bond markets are also facing pressure from uncertainty over the Federal Reserve’s next policy moves, fiscal concerns and increased debt issuance linked to artificial intelligence investment. These factors could keep Treasury yields volatile in the near term.

Investors were also assessing the conclusion of the G20 finance ministers’ meeting in Asheville, North Carolina, while turning their attention to upcoming U.S. economic data.

The ISM Manufacturing Index for August declined by 1 point from July to 54.6, slightly below the 55.3 forecast. July job openings, meanwhile, were broadly in line with expectations.

Market attention now shifts to Friday’s U.S. nonfarm payrolls report, which could provide further clues on the strength of the labour market and the Federal Reserve’s policy outlook.
 
 
 

 Disclaimer: The information contained herein (1) is proprietary to BCR and/or its content providers; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely; and, (4) does not constitute advice or a recommendation by BCR or its content providers in respect of the investment in financial instruments. Neither BCR or its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.