Middle East escalation tests a market already strained by conflict
The bond market opened the week under pressure Monday as US Treasury yields climbed across the curve, driven by a ninth consecutive night of American military strikes against Iran.
Fresh retaliation across the Gulf compounded the moves, raising the prospect of a 30-year fixed mortgage rate approaching 7% for the first time in years.
The yield on the 10-year Treasury note, the primary benchmark lenders use to price fixed-rate home loans, rose more than 6 basis points to 4.602% — sitting roughly 9 basis points below its 52-week high of 4.690%.
The 2-year note, which tracks short-term Federal Reserve policy more closely, gained more than 5 basis points to 4.225%, while the 30-year bond climbed above 5.119%.
Ninth strike in nine nights
US Central Command confirmed the latest operation at 10 p.m. ET Sunday, describing a three-hour exercise targeting Iranian military command centers, air defense and coastal surveillance sites, maritime capabilities, and missile and drone launch sites.
The strikes, the command said, were intended to further diminish Tehran's ability to threaten commercial shipping through the Strait of Hormuz, the narrow chokepoint responsible for roughly 20% of global oil transportation.
Iran has hit back with fresh attacks on targets in Bahrain, Saudi Arabia, and Jordan, while Kuwait's army confirmed Monday that its air defense systems were intercepting hostile drone attacks originating from Iran.
The scope of retaliation underscores why buyers have already retreated as mortgage rates climbed to an 11-month high, leaving brokers with a shrinking pool of committed purchasers.
A market already stretched thin
Last week offered a brief reprieve. Yields eased as cooler-than-expected producer and consumer price data filtered through.
Jobless claims for the week ending July 11 came in at a seasonally adjusted 208,000, below consensus forecasts, signaling that the US economy continues to absorb the inflationary pressures generated by the Iran conflict.
That breathing room looks temporary. The escalating Iran conflict has already sent mortgage rates near an 11-month high, and the dynamic playing out in bond markets Monday suggests further pain.
The 30-year fixed rate averaged 6.55% for the week ending July 16, according to Freddie Mac's Primary Mortgage Market Survey, up from 6.49% the prior week. Mortgage Bankers Association data showed the conforming loan rate climbing to 6.65%, its highest level since August 2025.
On Friday, investors will be watching the S&P Global Flash US PMI report, which measures the economic health of American manufacturing and services sectors, for any signal that the economy's resilience is starting to crack.
Until the conflict de-escalates or inflation data surprises sharply to the downside, the collapse of the Iran ceasefire continues to push mortgage rates higher and the path to 7% is now measurably shorter than it was a week ago.
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