US-Iran conflict escalates, US bond market hit hard as 10-year US bond yield reaches a record high.

The US-Iran conflict entered its third day, causing investors to sell US treasuries, pushing yields significantly higher. With oil prices surging and escalating tensions in the Middle East causing concerns of inflation resurgence, the safe-haven appeal of the bond market has temporarily weakened. On Monday, the yield on the 10-year US treasury rose by 9 basis points to 4.051%, marking the largest single-day increase since early June last year. Bond prices move inversely to yields. Rapidly rising yields often have implications for Wall Street, potentially depressing the stock market and increasing borrowing costs for businesses and households. Harley Bassman, Managing Director of Simplify Asset Management, stated that war itself has inflationary properties, as "buying a missile, it disappears after it explodes, essentially burning money." However, he pointed out that the key lies in the duration of the conflict. US President Trump stated on Monday that military action against Iran could last four to five weeks or even longer, while also expressing willingness to engage in dialogue with Iran's emerging leadership. The sell-off of US treasuries comes after a previous unexpected rebound. Last week, amidst severe adjustments in the technology and software sectors, funds flowed into US treasuries seeking refuge, briefly pushing the 10-year yield below the key psychological level of 4% and causing the 30-year mortgage rate to drop below 6% for the first time since 2022. However, as oil prices surged and inflation concerns reignited, sentiment in the bond market quickly reversed. The previously released January Producer Price Index showed the largest increase in wholesale goods and services costs in four months, coupled with rising crude oil supply risks, adding uncertainty to the inflation outlook. On Monday, both Brent and WTI crude oil prices rose to their highest levels since June last year. Angelo Kourkafas, Global Investment Strategist at Edward Jones, stated that the recent surge in oil prices is bringing about a certain degree of inflationary impact. The market is also focused on changes in economic momentum. Recent data suggests that the US economy may be reaccelerating, with small-cap stocks outperforming large-cap stocks this year. However, concerns about the impact of artificial intelligence on the software industry and white-collar employment pressures have yet to dissipate. US treasuries were once considered a "safe haven," but the current geopolitical and energy price fluctuations have weakened this role. The ICE BofA MOVE Index, which measures expectations of interest rate volatility, had already risen to its highest point of the year, indicating that bond market uneasiness was evident before the weekend attacks. Analysts believe that the oil price surge driven by geopolitics may be seen by the Federal Reserve as a temporary factor, but it may complicate interest rate decisions in the short term. US stocks showed mixed trends on Monday, with the Dow slightly down, the S&P 500 mostly flat, and the Nasdaq up 0.36%. Software stocks that had previously suffered steep declines saw a rebound, while high-yield bond ETFs remained largely stable. Some investors are betting on the conflict being resolved within a few weeks, but some market participants warn that if Gulf countries are drawn into the conflict or if the Strait of Hormuz remains blocked for an extended period, the risk scenario could still escalate.