US Treasuries slumped toward their biggest drop in over two weeks as escalating US-Iran tensions pushed crude above $98 a barrel and reinforced bets on Federal Reserve rate hikes. The conflict threatens global oil supplies, with US forces intercepting Iranian missiles and drones aimed at neighboring states, reducing chances that the Hormuz waterway will open soon.

Markets now price an 85% chance of a Fed rate hike by year-end, up from 60% last week, with expectations for a full increase moved forward to January 2026. US 10-year yields climbed four basis points to 4.48% after job openings data showed the highest level in nearly two years. Traders await ADP employment numbers and May nonfarm payrolls on Friday.

Next week's inflation print could rise to 4.2%, up from April's 3.8% - the fastest in three years. The increase has been driven by gasoline prices, highlighting the Iran conflict's impact. Cleveland Fed President Beth Hammack's view that the central bank may need to act soon on elevated inflation will face scrutiny as Fed policymakers Michael Barr and Lorie Logan speak before the June 17 meeting.