Bond yields rise as oil prices fan inflation fears; stocks slip

Global bond yields climbed on Tuesday due to inflation concerns, while oil prices surged to five-week highs after renewed U.S. strikes on Iran reignited tensions in the Middle East. The benchmark U.S. 10-year Treasury note's yield increased by 3.4 basis points to 4.792%, reaching its highest since January 2025. Japan's 10-year yield hit 3% for the first time since 1996, while British and euro zone yields reached over-10-year highs.

As yields move inversely to prices, expectations for interest rate hikes have risen, potentially leading to hikes across the board, which could negatively impact companies. Higher oil prices exacerbate inflation worries, and the closure of the Strait of Hormuz due to joint U.S.-Israeli strikes has further pushed up fuel prices. Euro zone inflation rose back above 3% in August, driven by higher energy costs, suggesting a possible September rate hike from the European Central Bank.

The Fed's expectations for a rate hike at their September 15-16 meeting stand at 66.2%, up from 39.6% a week ago. Wall Street's major stock indexes, including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, all fell on Tuesday. Seasonal weakness, with September being the only month with a negative average return since 1926, may also be impacting investor sentiment.