President Trump rejected a proposed peace plan with Iran, escalating U.S. hardline stance. Brent crude jumped 1.8 percent to $91.50 a barrel; WTI rose 1.9 percent to $87.20.
The immediate market reaction split along classic risk-off lines. Treasury yields fell sharply—the two-year dropping five basis points to 4.92 percent, the 10-year falling four basis points to 4.68 percent—as capital rotated into duration. Yet the real signal came from fed funds futures: pause probability at the next FOMC meeting now stands at 35 percent, a material shift from 30 percent the prior day.
Higher oil prices present a direct inflation problem for the Fed. Energy costs ripple through core inflation measures and complicate any pivot toward rate cuts. That tension—safe-haven demand pulling yields lower against inflation-driven hawkishness—is now visible in curve flattening. The 2s/10s spread compressed one basis point to 24 basis points, a classic pattern when investors rotate into longer duration while simultaneously pricing delayed cuts.
Gold rose 0.7 percent to $2,385 an ounce. The dollar index gained 0.3 percent to 105.1, reinforcing the greenback's bid during periods of geopolitical stress.
