Geopolitical conflict spikes oil prices and U.S. Treasury yields

Escalating geopolitical conflicts in the Middle East have sent international oil prices soaring above $100 per barrel, simultaneously driving U.S. Treasury yields to new highs. The 20- and 30-year Treasury yields have now surpassed 5%, a level not seen since the U.S.-Iran war and the period when reciprocal tariffs were announced last year. This dual surge in oil prices and long-term bond yields is once again creating turbulence in financial markets and casting a shadow over the global economy.

The latest flare-up in the Middle East stems from attacks by Yemen's Houthi rebels on Red Sea shipping routes. In response, U.S. President Donald Trump has threatened retaliation, reigniting instability in the region. With crucial shipping lanes on both sides of the Arabian Peninsula potentially disrupted, crude oil prices have breached the $100 per barrel mark. Brent crude futures for September delivery climbed over 8% to surpass $100 on July 23, while West Texas Intermediate crude futures rose over 7% to exceed $93.

Concurrently, data released on July 23 revealed continued improvement in the U.S. employment situation, with jobless claims falling. This economic strength influences the Federal Reserve's decisions on future interest rates and inflation. The 10-year U.S. Treasury yield reached nearly 4.710% on July 23, its highest since January 2025. The 20- and 30-year yields rose to 5.21% and 5.19% respectively, both breaking above the 5% threshold they held earlier in the month. These rising yields increase borrowing costs for mortgages and consumer credit, impacting households and businesses.