The bond market is experiencing significant volatility as 10-year yields approach 5%, driven primarily by escalating geopolitical tensions in the Middle East and their subsequent impact on oil prices. Iranian-backed disruptions in the Strait of Hormuz and the Bab el-Mandeb Strait are tightening global oil supply, forcing central banks like the ECB and the Federal Reserve to adopt more hawkish stances. Treasury Secretary Scott Bessent’s expanded buyback program has failed to stabilize long-term yields, as both the scale and execution of these operations disappointed market expectations. Consequently, the market has shifted its outlook, now pricing in four rate hikes over the next year. Maintaining an independent, hawkish monetary policy remains critical, as failure to hike rates in the face of persistent inflation and rising energy costs risks further destabilizing the bond market.
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