Aug. 18 (UPI) — Stocks fell on all three major U.S. indices Tuesday as investors were spooked by elevated bond yields and the prospect of higher oil prices as the war between the United States and Iran drags on without apparent resolution.
Tech stocks led the downturn as the Nasdaq Composite dropped by 1.3%, followed by losses on the S&P 500 (0.6%) and the Dow Jones Industrial Average (0.2%).
Most analysts put the blame for the markets’ poor showing on news that 30-year Treasury yield surpassed 5.3% for the first time since the global financial crisis in 2007, reflecting sagging demand from global buyers willing to underwrite sovereign U.S. debt.
Concerns over rampant government deficit spending and the United States’ burgeoning debt of nearly $40 trillion are pushing treasury yields higher, analysts noted.
The shorter 10-year Treasury, meanwhile, ended above 4.7%, compared to below 4% before the start of the Iran War in February.
Rising “T-bill” yields are considered a danger signal for the broader economy and consumer spending because they can have the knock-on effect of pushing up virtually all borrowing costs, from auto loans to mortgages.
The latter is being reflected in costlier mortgage rates. A 30-year, fixed-rate mortgage on Tuesday stood at 6.75% after ending last week at 6.69%.
Meanwhile, oil prices on Tuesday reached their highest level in more than two weeks after President Donald Trump threatened to “bomb” Oman if it interferes with his plans to open the strategic Strait of Hormuz.
The benchmark Brent crude futures traded around $91 per barrel, while U.S. West Texas Intermediate crude futures rose to $84 per barrel.
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Government borrowing costs are surging on both sides of the Atlantic.
Long-term bond yields across Europe’s biggest economies hit multi-year highs on Tuesday, while the yield on 30-year US Treasuries rose to its highest level in nearly two decades.
The sell-off came as hopes of a swift resolution to the Iran conflict faded, pushing oil prices higher and renewing concerns about persistent inflation. International benchmark Brent crude traded at nearly $91 a barrel on Tuesday morning amid heightened tensions in the Middle East.
“The breakdown in US-Iran peace talks has increased the risk that energy prices remain elevated for the rest of the year, which could keep inflation higher than expected and increase the chance of central banks raising rates,” Richard Carter, head of fixed interest research at Quilter Cheviot, told Euronews Business.
Investors are increasingly betting on tighter monetary policy in the eurozone, with the ECB deposit rate expected to reach 2.76% by March 2027, up from 2.25% currently.
According to Trading Economics, investors see a 90% probability of a September rate hike by the European Central Bank (ECB).
At the same time, in the US, the 30-year Treasury yield reached 5.33%, a level not seen since 2007. In the UK, the 30-year gilt traded at 5.85% — its highest level since May 2026.
As government bonds came under renewed selling pressure globally, France’s 10-year bond yield rose to 4.10% on Tuesday morning, its highest level since June 2009.
Germany’s 10-year Bund yield, the benchmark for the eurozone, climbed above 3.25%, reaching its highest level since March 2011.
France’s 30-year bond yield reached its highest level since 2008, amid a global bond sell-off and growing concern about the country’s 2027 budget negotiations and next year’s presidential election. Germany’s 30-year bond yield rose to 3.78%, its highest level in 15 years.
Rising long-dated bond yields are not driven solely by expectations of higher interest rates and inflation fears.
“Investors are concerned about the scale of borrowing in major economies including the UK, France and Japan,” Carter continued, adding that “significant volumes of AI-related bond issuance have also added to supply, creating further pressure on prices and pushing yields higher.
Higher borrowing costs put pressure on economies and raise financing costs across a range of investments.
As government debt offices constantly raise money through bond markets, the effect of the jump in yields will gradually feed into their borrowing costs as they refinance maturing debt.
Italy is expected to refinance maturing debt equivalent to 17% of GDP in 2026, according to S&P Global Ratings, compared with 12% for France and 7% each for Germany and the UK.
For now, bond markets are likely to remain sensitive to developments in both geopolitics and economic data,” Carter said.
He added that bonds remain attractive to investors because yields are historically high and comfortably exceed inflation, offering a positive return after price rises are taken into account.
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Crude and US Treasury yields rose together as traders judged that the exchange of compensation demands between the US and Iran has pushed any potential deal further out of reach.
The US president said on Monday he had told his negotiators to seek payment from Iran for Americans killed and wounded in attacks he attributes to Tehran going back decades, including the bombing of the USS Cole in the year 2000 and for Iranians killed in protest crackdowns.
In a follow-up post on Truth Social he expanded on the demand, saying Iran should also pay for “the damages and death caused to the people of Lebanon, Syria, Yemen, and Gaza”.
Tehran, whose representatives had sought compensation for five months of US and Israeli bombardment, says the Strait of Hormuz will stay shut until Washington lifts its naval blockade, ends sanctions and releases frozen Iranian assets.
The front month contract on Brent traded at around $89.8 a barrel on Tuesday and West Texas Intermediate at about $84.2, both up roughly 2.5%.
The US bond market read it the same way, with yields rising across the US curve in a modest global sell-off, the two-year over 4.25%, the ten-year above 4.7% and the thirty-year higher than 5.27%. The yields for all durations are trading at the highs of this year.
Since yields move inversely to prices, the rise means investors are selling government debt as they expect that costlier oil will feed into inflation and strengthen the case for higher interest rates.
Money markets now put roughly even odds on a Federal Reserve rate hike in September, with July inflation data due on Wednesday.
The current stalling of US-Iran negotiations is deliberate as US President Donald Trump appears to have been favouring a slower approach as of late.
The US president told Axios in an interview published on Sunday that the US is “low-keying it,” meaning Washington was only semi-negotiating and content to watch Iran’s inflation and empty coffers do the work, a signal he is prepared to let economic pressure mount rather than order a fresh military campaign.
In the Oval Office on Monday, he struck a triumphant note, claiming the US controls “100%” of the Strait of Hormuz, that only the US Navy holds sway in the region, that American forces have swept it clear of Iranian mines and that the blockade of Iranian ports is impenetrable.
However, shipping data tells another story.
Confirmed crossings have run at 6 to 11 vessels a day recently, against the 130 to 140 daily before the war, according to Kpler data, leaving traffic at a fraction of normal levels throughout the five-month conflict.
Douglas Rissing
One president since Ulysses Grant in 1873 saw lower bond yields in each of their four consecutive presidential years, according to Bank of America.
Only William McKinley presided over four consecutive years of falling bond yields.
On the other hand, Woodrow
Markets embrace 'deflation trade' as falling oil, rising real yields pressure gold, Brooks says
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