1) When do US Treasury yields rise?

At the most fundamental level, yields rise when bonds are sold (prices ↓ → yields ↑).

That usually happens when:

🔺 A. Inflation expectations go up (MOST important)

• If inflation rises, fixed bond payments are worth less
• Investors demand higher yields to compensate

👉 This is the #1 driver of long-term yields

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🔺 B. Interest rates are expected to stay higher

• If markets think the Fed won’t cut (or might hike), yields rise
• Especially affects short-term yields

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🔺 C. Government borrowing increases (supply effect)

• More Treasury issuance → more supply → lower prices → higher yields
• Think: deficits, war spending, stimulus

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🔺 D. Strong economy / growth expectations

• Investors rotate out of bonds into equities/risk assets
• Less demand for Treasuries → yields rise

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🔺 E. Inflation + fiscal risk combo (the dangerous one)

• This is when long-term yields spike
• Because investors demand a risk premium to hold US debt

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2) So why are yields rising during the Iran–US war?

This is where your intuition needs to flip:

👉 Not all wars push yields down. It depends on what kind of shock it is.

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🔥 Key idea: This war =

inflation shock

, not a demand shock

Normally:

• War → panic → investors buy Treasuries → yields fall (safe haven)

But this time:

• War → oil spike → inflation fears → yields rise

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⚡ 1. Oil prices are surging → inflation fears

• Oil prices have jumped sharply due to supply disruption fears  
• Strait of Hormuz risk = huge (≈20% of global oil supply)

➡️ Higher oil = higher transport, energy, food costs
➡️ Inflation expectations rise
➡️ Yields rise

👉 This is the main driver right now

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⚡ 2. Fed cuts are being priced out

• Markets are now less confident about rate cuts  
• Some even see potential for tighter policy if inflation persists

➡️ Higher expected rates = higher yields

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⚡ 3. War = bigger deficits → more bond supply

• Military spending likely to increase
• US already has a large deficit

➡️ More Treasury issuance → upward pressure on yields  

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⚡ 4. This is a “stagflation-type” setup

Markets are pricing:

• Higher inflation
• Slower growth

➡️ Worst combo for bonds

“This time is different… the shock is coming through inflation”  

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⚡ 5. Safe haven demand got overwhelmed

At the start:

• Yields actually fell briefly (flight to safety)

But then:

• Inflation narrative dominated
• Oil shock > fear

➡️ Yields reversed and moved higher

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📈 How you should think about this as an investor

If you want a clean mental model:

When yields fall during conflict:

• Demand shock (recession risk)
• Financial panic
• Fed easing

When yields rise during conflict:

• Commodity shock (oil)
• Inflation expectations rising
• Fiscal expansion

👉 The Iran situation is clearly the second case.

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