Renewed conflict between Iran and the U.S. boosts expectations of further rate hikes, with the 2-year U.S. Treasury yield hitting a more-than-1-year high.

BlockBeats, July 13—As tensions in Iran escalated again, pushing up oil prices and sparking market speculation that the Federal Reserve may need to raise rates to curb inflation, the yield on two-year U.S. Treasuries climbed to its highest level since early 2025.

The two-year Treasury yield, which is sensitive to interest-rate moves, rose by 3 basis points at one point to 4.24%, setting a new high since February 2025; the benchmark 10-year Treasury yield also rose by 3 basis points to 4.59%.

Swap trading data shows that the market has now nearly fully priced in expectations that the Fed will raise rates in September, whereas the probability about a week ago was around 66%. “The market is currently quite sensitive to news about Iran,”

Kenneth Crompton, head of rates strategy at National Australia Bank, said, “The market did not expect the conflict to repeat the heightened tensions seen in March, but given the attacks that have continued into the weekend and the attacks on Russian oil-refining facilities, some caution is gradually returning to market sentiment.”