Gulf Tensions Lift Oil Above $110, Pushing Yields to 15-Month Highs

Treasury yields held mostly steady on Monday after a sharp rise the previous week, as investors weighed the effects of elevated oil prices and ongoing tensions in the Middle East. The 10-year note yield eased one basis point to 4.587 percent, though it had touched its highest level in 15 months earlier in the session. The 30-year bond yield also slipped a basis point to 5.119 percent, while the two-year note moved to 4.071 percent.

The moves followed a week in which yields climbed across major economies amid worries that energy costs would remain high and feed into broader price pressures. Oil prices rose further Monday after reports of drone activity near the Strait of Hormuz and a fire at a nuclear facility in the United Arab Emirates. Brent crude traded above 110 dollars a barrel, and U.S. crude futures reached 102 dollars, with longer-dated contracts reflecting expectations of sustained supply constraints.

The developments come as U.S. officials continue talks with Iran. President Trump has pressed for a rapid agreement, while Tehran has sought greater control over shipping lanes that normally carry a significant share of global energy trade. Markets have priced in the risk that those lanes could stay largely closed, raising the prospect of higher input costs for businesses and consumers.

New data released last week already showed some of those costs beginning to reach households, adding to concerns that inflation may prove stickier than previously anticipated. Treasury Secretary Scott Bessent met with G7 counterparts and central bankers in Paris on Monday to discuss energy security and critical materials, though differences among the group on how to respond remain evident.

Similar pressures appeared in other bond markets. German 10-year yields climbed above 3.18 percent, and Japanese 10-year yields surged to levels last seen in the 1990s after the government signaled plans for additional debt issuance. In Britain, gilt yields also moved higher.

European Central Bank President Christine Lagarde, asked about the volatility during the Paris meetings, said she always worries about such developments because it is part of her role. The comment underscored the challenge facing policymakers who must balance growth concerns with the need to keep inflation expectations anchored.

For the United States, higher long-term borrowing costs could complicate fiscal planning at a time when debt levels are already elevated. The 30-year yield in particular has drawn attention because it is more sensitive to perceptions of political and fiscal risk. Analysts note that sustained yields at current levels would raise interest expenses for the federal government and could eventually influence mortgage rates and corporate borrowing.

Equity markets retreated globally as investors reassessed the outlook. Technology stocks, which have driven much of the recent rally, face additional scrutiny this week with earnings from major chip makers expected to test whether strong demand can persist amid higher input costs.

The combination of geopolitical friction and rising energy prices has left markets with few clear signals on the near-term path for interest rates. While the Federal Reserve has signaled patience, persistent oil-driven inflation could limit room for easing if price pressures broaden. Policymakers in Europe and Asia face similar constraints, with central banks monitoring both imported inflation and the risk of slower growth.

Investors will watch the remainder of the G7 discussions and any updates on shipping through the Strait of Hormuz for clues on whether the current pressures are temporary or likely to linger.