War tensions in Iran are triggering a bond market sell-off as inflation concerns resurface. Oil price surges have prompted traders to scale back bets on easier monetary policy, eroding the haven appeal of fixed-income assets. Government debt across major economies including the US, Japan and Australia is posting losses after bonds' best start to the year since the pandemic.

The conflict has forced the closure of the world's biggest LNG facility and Saudi Arabia's largest oil refinery, with tanker traffic through the Strait of Hormuz nearly halted. Societe Generale strategists estimate a sustained $20 per barrel oil shock could raise global inflation by as much as 1 percentage point, prompting traders to position for higher rates from central banks.

Current market reactions remain muted compared to previous energy crises, with Brent crude only reaching its highest since June. "The longer it carries on, the more risk there is of higher prices," said Gary Ross at Black Gold Investors LLC, as the market balances the probability of a relatively brief conflict against the potential for prolonged disruption to global energy supplies.