US‑Iran escalation drives oil surge, raises odds of Fed rate hikes

Oil prices jumped after the United States launched strikes on Iran in response to Iranian attacks on three vessels in the Strait of Hormuz, and Iran retaliated by bombing U.S. bases in the region. The heightened tension revived inflation concerns and prompted a sharp repricing of interest‑rate expectations worldwide.

U.S. Treasury yields rose across the curve, with the two‑year note up 4.2 basis points to 4.239% and the ten‑year at 4.593%, reflecting market bets that the Federal Reserve could raise rates at least once by year‑end. Futures now place an 87.3% probability of at least one Fed hike before December, up from pre‑escalation levels. Similar upward revisions appeared for other central banks, notably the RBNZ, which signalled further hikes, while most other banks remained likely to hold rates.

The episode underscores how geopolitical flashpoints in the Middle East can quickly reshape global bond markets and rate‑policy outlooks.