Quick overview

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US Treasury prices surged as traders reduced bets on higher interest rates due to concerns that the Middle East conflict would cause a severe economic slowdown. US stock futures increased as Brent reached $116 per barrel.

 

US yields fell across the curve after money markets reduced the likelihood of a Federal Reserve rate increase in 2026 to 25% from roughly 35% on Friday.

Two-year Treasury bond rates fell two basis points to 3.89 percent. After the benchmark fell to an August low at the end of last week, S&P 500 futures increased by 0.2 percent. The value of the dollar barely changed. The actions followed missile strikes that tore through the Middle East over the weekend as Iran and its proxies attacked US allies. After a month of fighting, concerns about an escalation increased with the arrival of Iran-backed Houthi forces and a US amphibious assault group.

Some of Wall Street’s largest bond fund managers predicted that yields will begin to decline as the war’s effects on growth become more evident, even though traders have so far mostly concentrated on the inflation shock caused by rising oil prices, sending the Treasury market toward its biggest monthly loss since October 2024

It’s becoming clear that markets are expecting an extended period of high oil prices, with stagflationary implications for the global economy.  According to credit traders, the cost of insuring Asian investment-grade debt increased by roughly two basis points on Monday to about 94 basis points, a level last observed in May of 2025. After a central bank action intended to reduce speculation caused lenders to sell dollars, the Indian rupee saw its biggest increase since February.