US Treasury yields surged to yearly highs Thursday as escalating Iran tensions drove oil prices higher and revived Federal Reserve rate-hike bets. The 10-year yield climbed four basis points to 4.71%, its highest since January 2025, surpassing the May peak of 4.66%. Before the February Iran conflict, yields were below 4%.

Brent crude hit $100 per barrel, fueling inflation fears. Traders now expect the Fed to hold or raise rates under new Chairman Kevin Warsh. "That's probably the biggest driver... the Kevin Warsh story," said Tom Tzitzouris of Baird Strategas. Stocks fell: Dow -370 points, S&P 500 -0.8%, Nasdaq -1.6%. Alphabet dropped over 6% on AI spending concerns.

Mortgage rates reached their highest since the war began. Defense Secretary Pete Hegseth said the conflict has cost $37.5 billion, worsening deficit concerns. Jamie Dimon warned he wouldn't buy long-dated Treasuries at current prices, citing inflation and deficit risks that "will become a problem" and could unleash "bond market vigilantes."