Dow drops 400 points after US confirms new strikes on Iran
Bond yields also climbed to multiyear highs Tuesday, adding pressure on stocks as investors weigh the odds of a Fed rate hike
As the U.S. Treasury yields surged near 4.79% on Tuesday, traders interpreted Iran's strikes as an indicator of inflation. The two-year yield specifically rose about 1.06%, climbing from near 3.35% to just a few basis points below 4.40%. While the front-end of the curve showed leadership, this was not a sign of a "defense premium," but rather a statement about the upcoming September 16 meeting.
The Federal Reserve's decision to potentially raise rates if inflation does not ease was echoed in the market, with futures pricing a hike at the September 16 meeting at 68%. Global markets also reacted, with Japan's 10-year yield touching 3% for the first time since 1996 and European sovereign bond yields following suit. However, the inflation outlook remains a concern, with upcoming economic data expected to weigh heavily on the Fed's decision.
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