US-Iran Military Escalation Drives Oil to Five-Week High and Sends Treasury Yields to Near Three-Year Peak

Renewed U.S. airstrikes on Iran have rattled global financial markets, pushing oil prices sharply higher and driving bond yields to multi-year highs across major economies. Brent crude rose more than 2% on Tuesday to above $92 a barrel, its highest level in about a week, while West Texas Intermediate futures climbed 2.61% to $88.05. The moves are stoking fresh inflation concerns and forcing investors to reassess the outlook for monetary policy.

U.S. 10-year Treasury yields hit an intraday high of 4.8122% on Wednesday, their highest level in nearly three years, after having risen to a 20-month high of 4.7880% the day before. The surge in borrowing costs spread globally: Japan's benchmark 10-year yield reached 3.015%, extending a climb that earlier in the week touched a three-decade high, while U.K. 10-year Gilt yields rose 10 basis points to 5.2501%, their highest level since June 2008. Rising yields have added to the pressure on equities, with some analysts warning the Federal Reserve could now lean toward a rate hike rather than a cut at its next meeting.

Wall Street futures fell on Wednesday as traders weighed the twin headwinds of higher energy costs and rising borrowing rates. European markets followed suit, with Germany's DAX dropping 0.7% to extend a third consecutive session of losses. Gold also declined despite the geopolitical uncertainty, as higher real yields reduced its appeal. September historically tends to be a weak month for equities, amplifying the negative sentiment.