Treasuries Drop as Trump Iran Threats Push Oil Prices Higher

Nigerian and global bond investors saw Treasury yields rise on Monday after US President Donald Trump threatened military action against Iran. The threat sent oil prices climbing and reignited fears that inflation will stay stubbornly high.

Yields moved up across the board as traders returned from a US market holiday. The 10-year Treasury yield rose five basis points to 4.50% in Asian trading. The two-year yield, which is very sensitive to interest rate expectations, climbed to around 4.22%.

Brent crude jumped as much as 2.2% to $82.30 a barrel after Trump's warning. West Texas Intermediate was trading near $75. The higher oil price is a problem for the Federal Reserve because it can keep inflation elevated.

Trump said on social media that he would strike Iran again if it does not stop its proxies in Lebanon from causing trouble. He also warned that the US might start collecting tolls if negotiations fail. US and Iranian officials have started talks in Switzerland aimed at a more lasting peace deal.

Andrew Ticehurst, a strategist at Nomura Holdings in Sydney, said the bond market was playing catch up after the Friday holiday. He added that higher oil prices were pushing yields up.

Investors are also reacting to hawkish comments from Fed Chairman Kevin Warsh last week. He made it clear the central bank will not tolerate high inflation. Traders now expect a quarter-point Fed hike by September. At the start of last week, they were not expecting a hike until next March.

Abbas Keshvani from RBC Capital Markets in Singapore said markets are still reacting to the Fed's tough stance. He noted that the Middle East hostilities and the rise in oil prices have also pushed yields higher.