U.S. Treasury yields moved higher on Monday even after the U.S. and Israel launched attacks on Iran over the weekend as investors failed to use the U.S. bond market as a safe haven.
A spike in oil prices raised inflation worries, helping to push yields higher.
The benchmark 10-year Treasury yield rose 8 basis points to 4.044%. The 30-year Treasury bond added more than 5 basis points to yield 4.688%. The yield on the 2-year Treasury note was up 10 basis points at 3.479%.
One basis point equals 0.01%, and yields move inversely to prices.
U.S. and Israeli strikes on Iran over the weekend killed Iran’s Supreme Leader Ayatollah Ali Khamenei. Meanwhile, more than 200 people were killed in the country, according to state media.
Iran has launched retaliatory strikes against U.S. bases within the Middle East region. Four American service members have been killed in the operation.
President Donald Trump told CNBC’s Joe Kernen that U.S. military operations in Iran are “ahead of schedule,” and has separately said that the conflict could last four to five weeks, or possibly even “far longer than that.”
Geopolitical conflict would typically cause Treasury prices to rise and yields to fall, but it appeared concerns about rising oil prices’ impact on inflation and the potential for a drawn-out conflict with the U.S. going it mostly alone trumped the safe-haven bid.
WTI crude oil prices were last up about 7% to above $72 a barrel. Other safe havens like gold were also higher.
“The bond market has said, ‘I’m more worried about inflation, than I am about growth, than I am about flight to quality,’” Allianz chief economic adviser Mohamed El-Erian said on CNBC’s “The Exchange,” citing higher oil prices due to the conflict as well as data from the ISM manufacturing index that showed economic activity expanding in February as catalysts for driving yields higher.
On the 10-year yield, El-Erian said he expects it to trade between 4% and 4.5%, barring any new financial shocks.
On the economic data front, investors are looking ahead to several important releases on Friday, including February’s jobs report, retail sales figures for January and February’s unemployment figures. Ahead of those, investors will be keeping an eye on ADP employment figures on Wednesday.