Bond yields have entered a new stratosphere of pain amid the latest surge in oil prices.
The sell-off in US Treasurys picked up steam on Monday as traders took in the latest developments in the US-Iran war and a fresh surge in oil prices. The benchmark 10-year US Treasury yield jumped 8 basis points to 5.26%, a level fixed income investors haven’t seen since 2002.
The move attests to investors’ worries about inflation and appeared to be fueled by President Donald Trump’s rejection of Iran’s proposal for a ceasefire and to reopen the Strait of Hormuz over the weekend. The closure of the Strait has been a key sticking point for investors all year long, stoking anxiety in the oil market.
A report from the Wall Street Journal also said the president told his aides he expects the US to continue attacking Iran after the midterm elections in November.
Inflation is top of mind for investors this week, with core Personal Consumption Expenditures, the Fed’s preferred inflation measure, due Wednesday.
Brent crude, the international benchmark, jumped 3% to trade around $107 a barrel. West Texas Intermediate crude was also up 3% to trade around $95 a barrel.
“Markets have revised the policy outlook, with further Fed rate hikes priced in for 2026 and additional tightening expected in 2027, particularly if oil prices remain above $100 per barrel,” Seema Shah, the chief global strategist at Principal Asset Management, said in a note.
US stocks dropped as investors priced in higher rates across the maturity ladder. The yield on the 30-year US Treasury also surged 7 basis points to 5.57%. The 2-year Treasury yield, which is most influenced by expected changes to the Fed funds rate, rose 7 basis points to 4.94%.
Here’s where US indexes stood shortly after 12:00 pm ET on Monday:
– S&P 500: 7,683.74, down 0.77%
– Dow Jones Industrial Average: 51,468.15, down 0.70% (-360.47 points)
– Nasdaq 100: 30,243.61, down 1.19%
“The culprits are energy prices and bond yields,” Paul Hickey, the co-founder of Bespoke Investment Group, said of the drop in stocks on Monday.
Investors were eager to take profits in the tech sector, which rallied last week on optimism surrounding AI agents and the launch of Meta’s Muse. Here were some of the most notable declines in the sector on Monday:
| Stock | Ticker | Monday’s decline |
| Intel | INTC | -6% |
| Samsung | KRX: 005930 | -5% |
| SK Hynix | SKHY (US-listed ADRs) | -4% |
| Meta | META | -4% |
| Advanced Micro Devices | AMD | -4% |
| Oracle | ORCL | -3% |
| Microsoft | MSFT | -1% |
The sell-off in government bonds has gripped investors’ attention lately and has largely been driven by concurrent fears about inflation, future Fed rate hikes, and concerns about the US’s fiscal health. Demand at recent Treasury auctions has been weak, meaning the premium on those bonds needs to rise in order to attract more investors.
Top economist Mohamed El-Erian said it looked like yields would remain elevated for the near-term, even if oil prices were lower.
“We have an imbalance in longer-term demand for bonds and longer-term supply of bonds,” he said, speaking to CNBC on Monday. “We’re not going back to 4%, 4.50%, 4.25%, simply because there’s too much of an imbalance in the supply and demand.”
The recent climb in yields has partly been stoked by strong growth expectations for the US economy, Principal Asset’s Shah said.
“If economic resilience and investment demand remain intact, there may still be scope for yields to move higher,” she said.