MW Bonds head for biggest selloff in nine months as Iran conflict sparks unusual Treasury moves
By Joy Wiltermuth
Mortgage rates and more will be vulnerable to the surge in the 10-yearTreasury yield
Investors were dumping Treasurys after the weekend attack on Iran sent oil prices higher, stoking fears of an inflation resurgence.
Investors reacted to the third day of the Iran conflict by dumping U.S. government bonds as oil prices spiked and Middle East hostilities stoked fears of an inflation resurgence.
Rapidly rising bond yields tend to unleash havoc on Wall Street. They can derail the stock market SPX, send a chill through capital markets and raise borrowing costs for households and businesses.
The 10-year Treasury yield BX:TMUBMUSD10Y surged 8.9 basis points to 4.05% on Monday, which would be its biggest daily increase since June 6, according to Dow Jones Market Data. Bond yields move in the opposite direction to prices.
"Wars are inflationary because you are burning money," said Harley Bassman, managing director at Simplify Asset Management. "You buy a missile, it blows up and it is gone." That said, what matters now is how long the conflict will last, he said.
President Donald Trump said on Monday that the Iran operation could last four to five weeks - or longer - but also that he was willing to talk with emerging leaders in Iran after U.S.-Israeli military strikes over the weekend killed the nation's leader, Ayatollah Ali Khamenei. "Somebody said today, they said, 'Oh, well, the president wants to do it really quickly. After that, he'll get bored.' I don't get bored. There's nothing boring about this," Trump said in a White House briefing.
Also read: Trump leaves door open for extended U.S. campaign against Iran
The Treasury selloff comes on the heels of a surprising rally for U.S. government bonds that coincided with a violent rotation under the surface of the stock market as investors looked for places to hide from selling in technology and software stocks.
There also have been signs that the U.S. economy might be reaccelerating, potentially helping small-cap stocks RUT overperform their large-cap peers in 2026, as well as other economically sensitive parts of the equity market.
Yet investors also have been gripped by concerns that artificial intelligence could overtake the software industry, make other business lines obsolete and trigger painful white-collar job losses.
Read: Block says AI will allow it to cut more than 4,000 jobs. Some argue that's not the whole story.
That had Treasurys looking like a port in the storm, with the benchmark 10-year rate dipping below the psychologically important 4% threshold last week. Because the rate serves as a peg for home loans, it helped pull the 30-year mortgage rate below 6% for the first time since 2022.
Bigger picture, bond-market jitters had appeared on the radar even before the weekend attack on Iran. The closely watched ICE BofA MOVE Index, which tracks investor anxiety over interest-rate moves based on a 30-day horizon, had spiked to 73.38, its highest level of the year.
The bond market's version of the equity "fear gauge" moved sharply higher at the end of February.
Simplify's Bassman, who created the MOVE index, said its 30-day horizon means economic data releases, such as inflation reports or labor-market data, can lead to big daily spikes. Last week's producer-price index for January surprised Wall Street by showing that the cost of wholesale goods and services saw their biggest increase in four months.
Concerns of an oil-supply glut had been keeping oil prices and U.S. inflation in check - at least until investors started factoring in a potential conflict with Iran.
On Monday, global Brent (BRN00) and domestic West Texas Intermediate (CL00) crude touched fresh highs for the year.
"In the near term, there are some inflationary impulses from the rise in oil prices over the last couple of months," Angelo Kourkafas, senior global investment strategist at Edward Jones, said in an interview Monday.
Geopolitical uncertainty and oil-driven rises in inflation could be viewed as more transitory by the Federal Reserve, Kourkafas said. However, those factors also might make the idea of interest-rate cuts more challenging over the immediate term, because "the optics might not be good."
The Dow Jones Industrial Average DJIA was flat, at last check, while the S&P 500 index and Nasdaq Composite Index COMP were recovering from a sharply lower start to Monday's session.
-Joy Wiltermuth
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 02, 2026 13:41 ET (18:41 GMT)
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