Rates Spark: Poised for Potential Breakouts

Shifts in US Bond Yields Following Iran Conflict

Following the onset of US military action against Iran, we observed a notable increase in the 2-year real yield, which climbed from 55 basis points to above 65 basis points. Meanwhile, the 2-year nominal yield advanced by an additional 10 basis points, causing the 2-year break-even inflation rate to edge up from 2.8% to 2.9%.

Earlier in the week, this pattern suggested that investors were anticipating higher inflation while remaining unconcerned about a significant slowdown in real economic growth. However, this outlook shifted on Thursday, as the 2-year real yield retreated below 60 basis points, signaling a change in market sentiment.