Treasury Yields Spike as Gulf Conflict Fuels Inflation Fears

The 30-year Treasury yield jumped to 5.03%, the highest since May 2025, following Iranian attacks on oil facilities in the UAE and US Navy ships. The 10-year yield rose to 4.45%, the highest since July 2025, while the 2-year yield hit 3.98%, the highest since June 2025. The bond market is pricing in rate hikes rather than cuts, with the 2-year yield now 34 basis points above the effective federal funds rate (EFFR) of 3.64%, the most since early 2023. The 30-year yield is 139 basis points above the EFFR. The average 30-year fixed mortgage rate climbed to 6.52%. The Fed's preferred core PCE price index reached 3.2% year-over-year in March, with the 6-month average at 3.7% annualized. Historically, 30-year yields exceeded 10% from 1979 to 1985, peaking at 15% in 1981, and did not fall consistently below 5% until the 2007 Financial Crisis. The bond market remains on edge as the Fed signals it may 'look through' surging inflation, raising the question of how many rate cuts would push the 30-year yield to 6%.