US Treasury yields surged to their highest levels since October 2024 as the war in Iran triggered a massive sell-off in government debt. The two-year Treasury yield jumped half a percentage point to 3.9 per cent this month, while the 10-year yield climbed 0.44 percentage points to 4.38 per cent. Both increases represent the largest moves in 18 months.

Investor anxiety over Middle East turmoil and potential energy price spikes has erased expectations for Federal Reserve rate cuts this year. The central bank's policy meeting last week left the door open to future cuts, but Chair Jerome Powell emphasized uncertainty in the economic outlook. Traders now see only a 30 per cent chance of a rate increase in 2025, with no cuts priced in until December 2027.

The bond market turmoil is already hitting American consumers, with 30-year mortgage rates climbing to 6.3 per cent, the highest level of 2025 according to the Mortgage Bankers Association. This surge complicates President Trump's efforts to address housing affordability before the midterm elections.