Bonds Drop With Stocks as Iran Tensions Boost Oil: Markets Wrap

(Bloomberg) — Bonds and stocks dropped after President Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz, denting some of the optimism that lifted markets late last week. Oil rose and precious metals sold off.

The rate-sensitive Treasury two-year yield climbed six basis points to 4.91% as elevated energy costs kept pressure on the Federal Reserve to raise interest rates to fight inflation. The 10-year yield rose five basis points to erase Friday’s decline that was spurred by expectations US and Iranian negotiators were exploring a deal that would reopen the vital waterway.

Brent crude gained 3% to $107.50 a barrel after Iran said it wouldn’t soften its demands and stuck to a seven-day proposal for reopening the Strait of Hormuz. The dollar strengthened against most of its major peers. Gold fell 2.4% to about $4,180 an ounce and silver retreated 4% as prospects of higher central bank rates weighed on the non-yielding metals.

MSCI’s Asia Pacific stocks index slipped 0.8%, with a gauge of mainland China equities touching a one-year low. Futures for the S&P 500 Index fell 0.4%, while Europe was set for a tepid open.

Oil remains a key market driver as elevated energy costs fuel inflation pressures and expectations for further rate increases. The average yield on global bonds climbed above 4% last week for the first time since 2007, raising concerns that higher borrowing costs may weigh on the economy and company earnings. Markets found some reprieve Friday on hopes that US-Iran talks would ease tensions and restore energy flows through Hormuz.

“Investors were once again disappointed by the lack of diplomatic progress,” said Rajeev De Mello, senior macro portfolio manager at Gama Asset Management. “Hopes that these discussions would help de-escalate the Middle East conflict and pave the way for the reopening of the Strait of Hormuz were dashed.”

The conditions Iran wants are something Washington might have agreed to about a year ago, Trump told Axios in an interview on Sunday. The US president said he expects negotiations to resume this week even though he rejected Iran’s latest proposal, Axios reported.

What Bloomberg Strategists Say…

“The signals from Asian stocks and bonds are mostly negative for European traders on Monday. Euro Stoxx futures reflect that outlook with a steady decline through the Asian session, although on modest volumes with US equity futures in the red.”

— Mark Cranfield, MLive Strategist. For full analysis, click here.

Tensions in the Middle East have boosted oil prices by about 75% this year.

Brent’s so-called prompt spread — the difference between its two nearest contracts — expanded to about $7.75 a barrel in backwardation, up from about $4 a week ago. The widening spread — with November’s price at a premium to December’s — points to elevated concerns about near-term tightness.

Elsewhere, the pound steadied as UK police investigated a potential terrorism incident after five men were arrested near an air base used in US strikes on Iran.

Government bonds in Japan, Australia and New Zealand fell along with Treasuries. South Korea’s three-year bond yield rose to its highest level in nearly four years.

The Middle East gridlock is “likely to remain the market’s focus” until the Fed’s preferred inflation gauge and US jobs report arrive later this week, said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore.

Traders are fully pricing at least one more 25 basis-point Fed hike by year-end after the central bank raised borrowing costs this month for the first time since 2023. Treasury Secretary Scott Bessent struck a more dovish tone, saying policymakers should keep an “open mind” on rates as productivity gains from AI and deregulation may help contain inflation.

“As long as the Iran conflict persists, markets will face the prospects of higher inflation, rate hikes, and tighter financial conditions,” said Vey-Sern Ling, a managing director at Union Bancaire Privee. “But investors should watch for buying opportunities with a longer-term view, given the depressed valuations this time, supported by surging AI-driven earnings.”

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.4% as of 6:52 a.m. London time Nasdaq 100 futures fell 0.8% The MSCI Asia Pacific Index fell 0.8% The MSCI Emerging Markets Index fell 1% Japan’s Topix was little changed Australia’s S&P/ASX 200 rose 0.1% Hong Kong’s Hang Seng rose 0.5% The Shanghai Composite fell 1.9% Euro Stoxx 50 futures rose 0.1% Currencies

The Bloomberg Dollar Spot Index rose 0.2% The euro was little changed at $1.1380 The Japanese yen fell 0.3% to 157.74 per dollar The offshore yuan rose 0.1% to 6.7146 per dollar The British pound was little changed at $1.3237 Cryptocurrencies

Bitcoin fell 1.8% to $83,056.04 Ether fell 1.4% to $2,648.11 Bonds

The yield on 10-year Treasuries advanced five basis points to 5.21% Japan’s 10-year yield advanced two basis points to 3.090% Australia’s 10-year yield advanced five basis points to 5.42% Commodities

Spot gold fell 2.4% to $4,180.76 an ounce West Texas Intermediate crude rose 2% to $94.29 a barrel This story was produced with the assistance of Bloomberg Automation.

–With assistance from Faseeh Mangi, David Finnerty and Jake Lloyd-Smith.

©2026 Bloomberg L.P.