U.S. Treasury yields climb as stalled Iran peace talks fuel market volatility. President Trump rejected Tehran’s latest proposal, plunging negotiations into a standoff. The 10-year yield hit 4.386%, up from Friday’s 4.364%, while the two-year spiked to 3.916%. Oil futures surged on supply disruption fears, and the WSJ Dollar Index rose 0.2%. Core inflation data due tomorrow is expected to show a 3.8% annual rate, up from 3.3%, intensifying pressure on the Federal Reserve.

The diplomatic deadlock has reinforced inflation expectations, with strategists noting higher energy costs and tighter monetary policy. Fadi Al Kurdi of FFA Kings highlighted how markets are pricing in prolonged Middle East tensions, keeping oil prices elevated. Central banks may delay rate cuts, as the S&P 500’s rally on strong earnings suggests growth resilience despite geopolitical risks.

Eurozone and UK bond markets face uncertainty. ING strategists warn short-dated bonds could drop if a deal emerges, while U.K. gilts jumped 6.4 basis points to 4.974%. Prime Minister Keir Starmer’s leadership turmoil adds to volatility, with his party losing local elections. The pound fell 0.2% to $1.3608, reflecting broader economic anxiety.

Markets are diversifying yield drivers beyond oil. ING analysts argue robust U.S. corporate earnings and payroll data are pushing global rates higher. This shift suggests tighter monetary policy and inflation expectations are now intertwined with geopolitical instability, creating a complex outlook for investors.