Three Saudi citizens were killed and several people of different nationalities were injured in two attacks Thursday targeting King Khalid International Airport in Riyadh and a Saudia Airlines aircraft, authorities said.
The strikes immediately rerouted bond market focus to a stagflation playbook: disruption to Saudi crude supplies hitting energy prices at a moment when central banks are still fighting inflation. Any sustained disruption to flows from Saudi Arabia, the world's largest crude exporter, would directly feed energy costs and push central banks to hold rates higher for longer.
U.S. Treasury yields fell sharply as investors rotated into duration. The 10-year yield dropped to 4.18 percent, reversing the prior week's climb, while the 2-year held firm at 5.07 percent—flattening the front end of the curve as markets priced reduced near-term rate cuts. Two-year breakeven inflation expectations edged higher to 2.44 percent, reflecting oil risk.
The yield curve compression reflects the bind facing fixed-income traders: safe-haven demand collides with energy-driven inflation. Spreads on investment-grade corporate bonds widened nine basis points to 112 basis points over Treasuries as investors retreated from credit risk. High-yield spreads moved out 18 basis points.
U.S. equity markets reflected the same tension. The S&P 500 fell 0.5 percent and the Nasdaq dropped 1.3 percent, while the Dow gained 0.1 percent—a divergence signaling sector rotation into defensive names.
