Investors are shunning U.S. debt as a haven play during the Iran conflict

By Vivien Lou Chen – Source: MarketWatch

The conflict with Iran is producing a somewhat counterintuitive reaction in the roughly $30 trillion U.S. bond market, by sending the benchmark 10-year yield to its steepest two-week climb in almost a year.

Military conflicts traditionally prompt investors to seek the safety of Treasurys, which then results in lower yields. But that’s not always the case when a geopolitical crisis is also pushing up inflation expectations, as it is now. A combination of higher oil prices, a federal deficit that’s likely to be exacerbated by wartime spending, and a U.S. central bank that may not be able to cut borrowing costs as much as expected this year are all altering the equation.