US-Iran Ceasefire Collapse Combined with Hawkish Fed Minutes Triggers Sharp Global Bond Selloff
Miles Bennett
The collapse of the US-Iran ceasefire pushed oil past $79; Fed minutes flagged AI investment as one of three inflation threats. Global yields surged across the curve, with markets now pricing a better-than-80% chance of a September rate hike.
Why did the ceasefire collapse, and how did oil react?
Trump declared at the NATO summit that the US-Iran ceasefire "is over" and threatened further military strikes against Iran.
Brent crude jumped above $79 a barrel; WTI hit $74.30.
This means → geopolitical risk around the Strait of Hormuz is no longer a hypothetical — it is actively pushing energy prices higher and feeding into inflation.
Where do Treasury yields stand now?
The 2-year yield rose to 4.21%, touching 4.235% intraday — just shy of its 2025 high of 4.25% set on June 22.
The 10-year climbed to around 4.58%, briefly breaking 4.60% for the first time since May 21. The 30-year reached 5.077%.
In plain terms = yields rose across the entire curve — short end to long end — signaling that markets fear inflation will persist, not just spike.
Why are the Fed minutes being called "fuel on the fire"?
The June minutes are the first under new Chair Kevin Warsh, who took office in May. The tone was distinctly hawkish.
"Most participants" judged that AI-driven business investment was pushing growth above potential output, risking more persistent inflation. "Nearly all of those participants" said policy tightening might be needed.
This means → the Fed's internal consensus has shifted: AI is no longer just a growth story — its capital spending is becoming an inflation source.
How did AI become an inflation threat?
In the April minutes, "AI" appeared 8 times with only 1 reference to inflation. In June, it appeared 20 times, with 7 directly tied to upside inflation risk.
The minutes placed AI infrastructure spending alongside tariffs and oil prices as one of three top inflation threats facing the Fed.
Amazon launched a bond sale of at least $25 billion on the same day to fund AI infrastructure. This reflects a supply-side pressure: corporate mega-issuance is competing directly with government debt for the same pool of buyers, pushing long-end yields higher.
How is the market pricing rate hikes now?
The probability of a September hike jumped above 80%. The odds of at least one hike by year-end reached 83%, with a 44% chance of multiple hikes.
Just days earlier, markets had pushed the first expected hike out to December.
Put simply = a few days ago the debate was "maybe one hike by December." Now it is "September is likely, and two hikes by year-end are a real possibility."
Why did European bonds sell off even harder than Treasuries?
European markets had not yet reacted to the US-Iran news by Tuesday's close. Wednesday's open brought a violent catch-up: the German 10-year yield spiked 8 basis points to 3.068%; the UK 10-year surged 13 basis points to 4.957%.
Euro-area markets now fully price a 25-basis-point ECB hike in October. UK markets price a Bank of England hike by November, with roughly 40% odds of a second hike before year-end.
This means → the oil shock hits Europe more directly — as a net energy importer, higher energy prices are an immediate inflation import, leaving European central banks with even less room to maneuver than the Fed.
Content is for reference only, not financial advice.