Longer-Dated US Treasury Yields Climb as Iran and US Restart Military Attacks

Longer-dated US Treasury yields climbed Monday, August 31, after Iran and the United States resumed military attacks over the weekend, reigniting inflation concerns just days after Federal Reserve Chair Kevin Warsh struck a hawkish tone at the Jackson Hole symposium.

How Yields Moved

The yield on the benchmark 10-year Treasury note rose 3.6 basis points to 4.758%, after earlier touching 4.768% — its highest level since January 15, 2025. The 2-year Treasury yield, which more closely tracks near-term Fed policy expectations, was also higher, continuing a climb that had already pushed it up more than 12 basis points on Friday following Warsh's remarks. One basis point equals 0.01%, and Treasury yields and prices move in opposite directions.

What Reignited the Conflict

President Donald Trump promised to "hit them hard" after Iran launched missiles overnight at two US air bases in Jordan, in response to a US attack on Iran's Larak Island. The exchange marked the first significant military escalation between the two sides in over a month, following weeks in which the conflict had shifted primarily toward economic pressure rather than direct combat.

Oil Prices Jumped in Tandem

Brent crude futures rose $2.39, or 2.71%, to settle at $90.49 a barrel — its highest level since August 25 — while US West Texas Intermediate crude climbed $2.36, or 2.83%, to settle at $85.76. The renewed rise in oil prices kept alive the risk of further interest rate increases from major central banks worldwide, not just the Federal Reserve.

A Compounding Hawkish Fed Signal

Monday's yield climb built directly on momentum from Warsh's Friday speech at Jackson Hole, which boosted bets on a September Fed rate hike. Fed funds futures traders were pricing in 65% odds of a September hike, up sharply from around 35% before Warsh's comments. The European Central Bank is also widely expected to raise rates at its meeting on September 9 and 10, suggesting the tightening pressure isn't confined to the US alone.

Stocks Held Up Despite the Headwinds

Despite the renewed geopolitical and rate-related pressure, US equities closed out August on a strong note: the Nasdaq climbed 3.9% for the month, with the AI trade remaining resilient despite recent bouts of weakness, while the blue-chip Dow notched its fifth consecutive monthly advance. The MSCI global index was up roughly 2.6% for August. "There are definitely dark clouds out there. Whether the storm hits us or not is yet to be determined," said Adam Sarhan, chief executive of 50 Park Investments in New York, adding that inflation and rate hikes remain among the key risks even as the market has held up so far.

What's Coming Next in the Data Calendar

Two closely watched data releases loom large over the coming days: Friday's August payrolls report and the consumer price index data due September 11 — both expected to be key inputs into whether the Fed actually moves as early as its September meeting. Economists expect payrolls to increase by 58,000, following July's shock decline of 23,000, with the unemployment rate expected to hold at 4.1%.

European Bonds Also Under Pressure

The rise in yields wasn't confined to the US: German and French 2-year bond yields also climbed Monday, while the dollar edged lower even as expectations for a September Fed hike increased — reflecting how directly the renewed Iran conflict is rippling through global fixed-income markets beyond just US Treasuries.

The Bigger Picture

Monday's move continues a pattern that has repeatedly defined bond markets throughout 2026: whenever the Iran conflict escalates, oil prices rise, feeding directly into inflation expectations and pushing yields higher — a dynamic that has proven remarkably consistent across multiple flare-ups over the war's now six-month duration. With the September Fed decision increasingly hinging on this week's jobs data and next month's CPI report, bond markets are likely to remain highly sensitive to any further developments in the Strait of Hormuz standoff in the days ahead. For live Treasury yield data, see the US Treasury's daily yield curve rates.

With yields now sitting at their highest levels in over a year and Warsh's hawkish tone still fresh in investors' minds, this week's jobs and inflation data are shaping up to be the most consequential data points yet for determining whether the Fed actually pulls the trigger on a September rate hike.