Global government bond markets sold off sharply this week as a renewed exchange of military strikes between the United States and Iran pushed oil prices to their highest level in five weeks, compounding investor anxiety over an inflation outlook that already looked precarious. The yield on the 10-year U.S. Treasury note climbed to 4.814% on Wednesday, its highest level since November 2023, before easing slightly as stocks staged a modest recovery.
The moves capped a volatile stretch in which the S&P 500, Dow Jones Industrial Average and Nasdaq Composite had each fallen for three consecutive sessions before rebounding, with the Dow adding roughly 295 points, or 0.56%, on Wednesday. Longer-dated Treasury yields have been climbing steadily for weeks, but the latest leg higher was driven largely by a fresh round of U.S. airstrikes on Iran and Tehran's retaliatory strikes against Jordan, Bahrain and Kuwait — all hosts to American military installations in the region.
Oil climbs, complicating the inflation picture
West Texas Intermediate crude settled above $90 a barrel Wednesday, notching a third straight session of gains, while Brent crude closed above $95 for the first time since late July, according to Bloomberg's oil-market coverage. U.S. Energy Secretary Chris Wright said Monday that roughly 17 million barrels transited the Strait of Hormuz that day, the highest daily volume recorded since the conflict began, suggesting the chokepoint — which normally carries about a fifth of the world's seaborne oil supply — remains functionally open even as fighting continues around it.
The renewed hostilities have unsettled a bond market already grappling with elevated government debt loads on both sides of the Atlantic. German 10-year bund yields rose to 3.375%, their highest since 2011, while Japan's 10-year yield pushed past 3% for the first time in three decades. "Renewed hostilities in the Middle East sent crude prices surging, driving Wall Street lower and global bond yields to multi-year — and in some instances, multi-decade — highs," said Kyle Rodda, a market analyst at Capital.com, in comments carried by Yahoo Finance.
A cooling labor market adds to the crosscurrents
The bond selloff came a day after payroll processor ADP reported that private employers added just 38,000 jobs in August, well short of the roughly 48,000 economists had forecast and the slowest pace of hiring since January, according to the ADP National Employment Report. Large employers — those with 500 or more workers — accounted for nearly all of the gains, adding 34,000 positions, while manufacturing shed 17,000 jobs and professional and business services cut 16,000.
Pay can tell us a lot about today's choppy hiring. To understand hiring patterns, you have to look deeply into where pay growth is accelerating, where it's slowing, and for whom.
Dr. Nela Richardson, ADP chief economist
Wage data in the report offered a partial explanation: pay for workers who changed jobs rose 4.7% year over year, more than a percentage point faster than the 3.0% gain recorded by those who stayed in place, suggesting employers remain willing to pay up for the right hires even as overall headcount growth stalls.
The combination of a softening labor market and rising energy costs leaves the Federal Reserve in an uncomfortable position ahead of its policy meeting later this month. Slower hiring typically argues for lower rates, but a fresh run-up in oil prices threatens to reignite the same inflation pressures the central bank has spent more than two years trying to tame — a tension likely to dominate debate among policymakers in the coming weeks.
Investors seek shelter
The uncertainty has pushed some investors toward traditional havens. Gold traded near $4,334 an ounce, up more than 25% since the start of 2025, as buyers sought protection against both the geopolitical shock and the prospect of persistently high government borrowing costs.
Equity markets, for now, appear to be betting the latest flare-up will prove containable. Rodda noted that traders are hoping the exchange of strikes represents another attempt by the administration to "escalate to de-escalate" rather than the start of a broader regional war, though he cautioned that Asian equities in particular remain vulnerable to further declines given their sensitivity to both interest rates and oil prices. Whether that bet holds may depend on how the standoff over the Strait of Hormuz evolves in the days ahead, and on how policymakers weigh a weakening jobs market against a renewed energy-price shock.
