Nasdaq slides, yields elevated as Mideast conflict fears grow

U.S. government bond yields dipped slightly on Tuesday, although longer-term yields stayed close to multi-year peaks as fears of a widening Middle East conflict fueled inflation concerns and depressed stocks. Oil prices nudged higher, bouncing for a third day in a row, as the likelihood of a U.S.-Iranian peace agreement faded after Tehran pledged a tougher approach and Washington rejected extending a ceasefire deal.

Oil prices were $0.82 higher, at $85.17 a barrel, while Brent crude gained 0.55% to $91.37 per barrel. Despite recent soft U.S. economic data, the rise in yields outpaced expectations, with traders seeing only a 35% probability of a Federal Reserve rate hike at the September meeting, rising to 68% by December. Economist Will Compernolle noted the ongoing Iran conflict adds to worries about the U.S. fiscal path.

The 30-year Treasury bond yield fell 2.32 basis points to 5.2868%, its lowest since 2007, while the 10-year note yield slipped 1.6 basis points to 4.708%. The increase in U.S. yields coincided with Japanese government bond yields hitting 30-year highs, raising doubts that Japanese investors may move funds out of U.S. debt into Japanese bonds, potentially further lifting Treasury yields.

Across global markets, Wall Street's main indexes hit their lowest levels in two weeks, pressured by losses in technology stocks. Elevated yields could weigh on equities, making stocks less appealing and raising borrowing costs for companies investing in AI infrastructure. The Nasdaq Composite fell 1.05%, the Dow Jones Industrial Average slipped 0.12%, and the S&P 500 declined 0.50%.

The CBOE Volatility Index hit its highest level in over a week, indicating heightened market uncertainty. Investors now focus on the Federal Reserve's policy meeting minutes and the upcoming Jackson Hole symposium, where policymakers will provide insights on interpreting recent economic data.