Nasdaq falls, yields rise as Mideast conflict fears increase

The yields on U.S. government bonds eased a little bit on Tuesday. However, longer-dated yields remain near multi-year highs. Earlier in the day, the 30-year Treasury yield had reached a level that was not seen since 2007. Fears of an escalating Middle East?conflict have fueled inflation concerns and put pressure on stocks. Oil prices rose for the third consecutive session as prospects of a U.S. - Iranian peace deal dimmed. Tehran announced it would take a more aggressive stance, and Washington said that it wouldn't extend a ceasefire agreement.

U.S. crude climbed 0.82%, to $85.17 per barrel. Brent was up to $91.37 a barrel on the same day.

The yields on Treasury bonds have increased despite recent soft economic data in the United States, which has eased concerns over an impending Federal Reserve rate increase. The Fed will only raise rates by 35% at its September meeting, but the odds are 68% that it will do so in December.

Resurgent inflation may lead to a renewed expectation of a quicker pace in rate increases. Will Compernolle is a macro-strategist at FHN Financial. He said: "We live in a world that will have supply shocks after supply shocks."

Costs of the ongoing Iran war are also adding to concerns over the U.S. financial trajectory.

Last week, the yield on the 30-year Treasury bond fell 2.32 basis points to 5.2868% after having reached 5.3371% - the highest level since 2007. Benchmark 10-year yields dropped 1.6 basis points to 4.708%. They reached 4.7478% - the highest level since January 2025.

Analysts are concerned that domestic investors, particularly pension funds and insurers, could start shifting their capital from U.S. bonds to Japanese bonds as Japanese yields become more attractive. This would increase the pressure on Treasury rates. Japan's 10-year yield hovered just below 3% for the first since the mid-1990s. Euro zone bond yields were also near multi-year heights.

Markets turn cautious

Wall Street's major indexes have fallen to their lowest levels in two weeks due to losses in heavyweight tech stocks.

Kim Forrest is the chief investment officer of Bokeh capital Partners. She said, "The yields worry people because they portend a tighter economy and that borrowing money will be more costly." "Especially with this AI thing, where the time to repay it is uncertain. This creates a nervous environment for investors.

The high yields on stocks tend to make them less appealing to investors and increase borrowing costs for companies that invest heavily in AI infrastructure.

The Nasdaq Composite dropped 1.05%. The Dow Jones Industrial Average fell?0.12%. And the S&P 500 fell?0.50%.

The MSCI index of global stocks fell by 0.63% and the pan-European STOXX 600 Index dropped by 0.69%.

The CBOE Volatility Index (Wall Street's fear gauge), hit its highest level in over a week.

Investors will now turn their attention to the release of Wednesday's minutes from the Fed's most recent policy meeting, as well as this week's Jackson Hole Symposium, which is expected to be closely monitored for clues about how policymakers interpret recent economic data.

Jonas Goltermann is the chief markets economist for Capital Economics. He said that the minutes of FOMC meetings are a more important way to convey the views of policymakers, given the fact that the FOMC's statement of policy and Fed chair Kevin Warsh's speeches have less information.

The Federal Open Market ?Committee is the Fed's interest-rate-setting body.

The dollar index, which measures greenbacks against a basket including yens and euros, rose by 0.06%, to 99.60. The euro gained 0.03%, at $1.1582. Gold spot fell by 1.11%, to $4366 per ounce.

(source: Reuters)