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Treasuries Edge Lower as Inflation Concern Trumps Haven Buying

(Bloomberg) -- Treasuries pushed lower across the curve as traders chose to bet on the potential inflationary aspects of the US-Iran conflict rather than rush to havens.

US government securities reversed their earlier gains as initial flight-to-safety moves subsided and investors weighed how long the war will last. The US intends to sustain its assault on Iran for “four to five weeks,” President Donald Trump told the New York Times.

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US 10-year yields climbed three basis points to 3.97% after earlier falling to an 11-month low of 3.92%. Thirty-year yields rose four basis points to 4.65%. Havens such as Treasuries, the yen and Swiss franc had only made marginal gains in earlier Asian trading despite the escalation of the Iran conflict over the weekend. The dollar strengthened and oil surged.

“The markets have run with the view that this is unlikely to be a drawn out conflict,” leading to the reversal in Treasuries, said Prashant Newnaha, senior strategist at TD Securities in Singapore. “Ultimately, whether the conflict is short or extended, the market agrees conflict is inflationary, consistent with a steeper curve.”

Global oil benchmark Brent jumped as much as 13% to the highest since January 2025.

“The ‘bond-as-haven’ trade becomes less clean” if higher oil prices keep inflation pressures elevated, said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “It’s more about how sticky oil prices remain.”

Treasuries in February posted their biggest monthly gain in a year as tensions ratcheted up between the US and Iran, and investors grew concerned that the spread of artificial intelligence technology may harm the economy. Two-year yields had fallen to the lowest since August 2022 on Friday as traders added to bets on Federal Reserve interest-rate cuts.

“Oil is the immediate focus,” Adam Hetts, global head of multi-asset at Janus Henderson, wrote in a note. “In a prolonged period of uncertainty, increases in oil prices could generate a global inflationary scare, which in turn may reduce the likelihood of interest rate cuts by the US Federal Reserve.”

(Updates with additional moves, context)