The global financial markets are in a state of flux as the escalating tensions between the United States and Iran have investors on edge. The war, which has entered its fourth day, has triggered a risk-off sentiment, causing Treasury yields to rise and global equities to decline. The benchmark 10-year Treasury yield rose nearly 4 basis points to 4.09%, while the 30-year Treasury bond added more than 2 basis points to a yield of 4.723%. The 2-year Treasury note yield was up over 4 basis points at 3.531%.
The conflict has intensified with Israel striking both Iran and Lebanon simultaneously after Tehran-backed Hezbollah launched missiles and drones towards Tel Aviv. The American Embassy in Riyadh was also attacked on Tuesday, with President Donald Trump warning that the conflict may last far longer than the four weeks he initially projected. The fear of an energy supply disruption has mounted, with Iran closing the Strait of Hormuz and warning vessels attempting to pass through the strategic chokepoint. This has pushed oil prices higher.
Markets have shifted into risk-off mode, with U.S. futures and Asian stocks declining on Tuesday. Gold futures climbed on safe-haven demand before spot prices pared gains. The uncertainty surrounding the conflict has caused investors to re-evaluate their risk exposure, leading to a shift in asset allocation. The impact of the war on the global economy and financial markets remains to be seen, but the initial reaction has been one of caution and risk aversion.
