[MARKET ANALYSIS] Global yields jump as Iran-Israel launch fresh strikes at each other

Global fixed benchmarks are entirely in the red this morning, dragged down by higher energy prices after Israel struck Lebanon with fresh strikes, which led to retaliation from the Iranians. At the time of writing, Tehran is dealing with yet another round of attacks. Following the recent attacks, President Trump suggested that the announcement of a deal with Iran was set for this week, but now new fighting is happening. He also stated that he is not happy with Israel, adding that it was carried out without the US. The Iranian Foreign Minister thereafter doubted that claim, saying the US and Israel cannot be separated. On a positive note, the FM stated that message exchanges are ongoing with the US, through Pakistani mediators.
USTs are off by c. 7 ticks and trade at the bottom end of a 108-25 to 109-02+ range; pressure which follows the aforementioned geopolitical developments. Also in the picture is a continued hawkish repricing at the Fed, following a solid NFP report last Friday. As it stands, markets assign a 50% chance of a hike in September, and fully priced in by Dec’26. Markets will look towards the US CPI/PPI reports due mid-week, whereby a hawkish report could see Fed officials push for removal of the easing bias at next week’s confab.
From a yield perspective, rates are rising across the curve with the shorter/belly of the curve leading. The US 10yr (+44bps) has taken a more decisive move above the 4.50% mark, last at 4.57%. This brings into play near-term highs from late-May at 4.63% and then the YTD high at 4.68%.
Bunds (-27 ticks) and Gilts (-40 ticks) follow the bearish action, for the same reasons mentioned above; UK paper mildly underperforms given its high reliance on external energy. Newsflow for the respective regions has been light this morning, but the UK has had an interesting update via PM Starmer, where he announced a new commitment to purchase specialist AI chips at a value of GBP 400mln. Perhaps an indication of the UK attempting to boost its attractiveness at a global stage, but unlikely to have any immediate impact on price action for now.