Market Selloff and Bond Yields

Stocks fell on Tuesday as bond yields continued to climb globally and hostilities between the S. and Iran escalated again. The S&P 500 dropped 0.71%, the Dow Jones Industrial Average fell 0.79%, and the tech-heavy Nasdaq Composite underperformed with a 1.03% decline.

Bond yields around the world rose amid concerns that another burst of energy inflation could keep interest rates elevated. Japan's benchmark 10-year government bond yield touched 3% for the first time since 1996, while the two-year yield climbed to its highest level in more than three decades. In the , the yield on 30-year government bonds reached its highest since 1998, and 10-year debt was at levels last seen during the global financial crisis of 2007-08. S. 10-year Treasury yields rose to about 4.79%, their highest since January 2025, and 30-year S. Treasuries were just short of their 2007 mark.

Rajeev De Mello, at Gama Asset Management, said: "Bond yields were already rising and the renewed US-Iran attacks and their impact on oil prices have made investors more concerned about bonds." He added that "at these levels, higher yields are clearly a headwind to Asian equities, especially longer duration tech stocks." Markets across Asia were down, with tech firms—which rely on low borrowing rates to fuel their investments—dragging Tokyo and Seoul.

Fed Signals Potential Rate Hike

Federal Reserve Governor Michael Barr said he will support an interest rate hike if inflation doesn't ease. Speaking at a banking forum in Washington, Barr, who votes on FOMC decisions, said he's concerned about "broader price pressures taking hold."

"If trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance," Barr said. "However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates."

Traders are pricing in a 70% probability of a hike, according to Bloomberg. Barr's comments stoked expectations that decision-makers would act if inflation remains above the Fed's two percent target, a level it has exceeded for more than five years.

S. Strikes on Iran

The S. military conducted a new round of strikes against Iran in the Strait of Hormuz on Tuesday, according to the S. Central Command. "Today at 12 m. ET, S. forces began striking Islamic Revolutionary Guard Corps (IRGC) targets in Iran. The strikes follow recent attempted attacks by the IRGC against commercial shipping in the Strait of Hormuz and against American service members deployed to the region," CENTCOM said in a social media post. Attacks took place in Bandar Abbas, Jask, Chabahar, Konarak, Minab, Sirik, and the islands of Qeshm and Lavan.

Hours earlier, maritime security consultant Marisks noted that two tankers had been hit while seeking to exit the Persian Gulf, both transiting the waterway near Oman. Iran has said vessels can only pass through a route approved by authorities and sought to strike those that don't.

President Trump said on social media that the attacks were "in retaliation for the Iranians' failed attempt at adding sea mines to the Strait, which currently has no mines (They have been completely removed or ), and the Iranians shooting eight missiles, all successfully knocked down, at our Military Base in Jordan." He warned: "If the failed Nation of Iran retaliates for this very justified attack, they will be hit again at a much harder higher level, but it will not be the biggest attack of them all, that is waiting in the wings and, when it is over, there will be very little left of the Islamic Republic of Iran!"

Iranian Response and Oil Prices

Iran vowed to retaliate. A spokesman for the Iranian Revolutionary Guard Corps said, "Harsh punishment awaits the aggressors. The United States will regret its new attacks," according to Iran International. Shortly after the country launched attacks, the IRGC said they would "tighten the lock" on the Strait of Hormuz. An IRGC statement read: "Hours ago, in indiscriminate attacks born of desperation, the invading US military bombed several locations along Iran's southern coast, including several civilian sites," and added, "The IRGC's fighters have begun a response that will make the aggressors regret their actions."

Crude jumped more than two percent and has spiked around 10% this week after the United States hit an Iranian island in the Strait of Hormuz, sparking a series of tit-for-tat attacks in which Tehran has targeted American interests in several regional countries. Washington said it would aim for the "economic asphyxiation" of the Islamic republic. With the strait—through which about a fifth of world oil and gas passes—effectively closed for the foreseeable future and energy costs unlikely to come down, inflation fears are growing.