U.S. Treasury yields declined on Monday after a sharp rise in short-dated yields last week, reversing gains following Federal Reserve Chairman Kevin Warsh’s emphasis on returning inflation to the 2% target. The two-year Treasury yield fell 2.5 basis points to 4.323%, and the 10-year yield dropped 1 basis point to 4.710%. In contrast, eurozone government bond yields rose, pushing the 10-year German Bund yield to 3.290% in opening trade—a level unseen since 2011—according to LSEG data.

The increase was driven by fresh military escalation between the U.S. and Iran after U.S. forces attacked two Iranian rocket launchers in the Strait of Hormuz, which lifted oil prices above $90 per barrel. Sofie Liv Petry of Danske Bank noted the exchange marked the first U.S. strike on Iran’s forces in over a month and highlighted renewed escalation risks. Investors increased expectations for a September rate hike, with U.S. money markets pricing a 60% probability of a Fed increase at the Sept. 16 meeting, up from 35% before Warsh’s Jackson Hole speech.

Elisabet Kopelman of SEB said Warsh’s remarks supported market expectations of a fall rate hike, while Larry Holzenthaler of Catalyst Funds praised Warsh for re-establishing confidence in the Fed’s inflation focus.