Treasury Yields Rise as War Uncertainty Offsets Trump’s Pause and Oil Surge Continues

U.S. Treasury yields edged higher on Friday, reflecting a market caught between tentative diplomatic signals and the growing risk of a deeper Middle East conflict.

The benchmark 10-year yield rose 4 basis points to 4.458%, while the policy-sensitive two-year yield climbed 2.6 basis points to 4.01%. Long-end pressure was also evident, with the 30-year yield advancing roughly 3.6 basis points to 4.972%. The moves point to a cautious repricing of risk, with investors demanding higher returns even as uncertainty clouds the outlook.

The market focuses on the evolving war involving Iran, the United States, and Israel, now approaching its fifth week, with conflicting signals from Washington complicating sentiment.

In a post on Truth Social, President Donald Trump said he would extend a pause on attacks targeting Iran’s energy infrastructure by 10 days, pushing the deadline to April 6 to allow space for negotiations.

“Talks are ongoing and … they are going very well,” he said.

The announcement initially eased fears of immediate escalation, but the relief proved short-lived.

Oil markets quickly resumed their upward trajectory, with Brent crude climbing to around $109.58 per barrel and U.S. West Texas Intermediate rising to $95.21. Analysts say the muted reaction reflects deeper skepticism about the prospects for a durable ceasefire.

Jim Reid of Deutsche Bank described the market response as a “kneejerk reaction,” noting that Brent prices were already “within touching distance of the level it was at before Trump’s post.”

“While the delay might reduce some of the immediate escalation risk, it offers no new visibility on the path towards resolution,” Reid said, pointing to Iran’s denial of active negotiations and the continued disruption in the Strait of Hormuz, where shipping flows remain severely constrained.

That disruption is central to the current market dynamic. The Strait of Hormuz handles a significant share of global oil shipments, and its effective closure has tightened supply, embedding a geopolitical risk premium into energy prices. Higher oil prices, in turn, are feeding into inflation expectations—one of the key drivers behind rising Treasury yields.

At the same time, investors are weighing increasingly mixed signals from Washington. While the extension of the pause suggests a willingness to pursue diplomacy, parallel military preparations point in the opposite direction.

The Pentagon is reportedly deploying around 2,000 paratroopers from the 82nd Airborne Division, based at Fort Bragg, to the Middle East. The unit’s rapid deployment capability, able to mobilize globally within 18 hours, underscores the readiness for escalation even as talks are being discussed.

This dual-track approach, diplomatic overtures alongside military positioning, is adding to market unease. For bond investors, the implication is a wider range of possible outcomes, from de-escalation to a broader regional conflict, each carrying very different consequences for growth, inflation, and monetary policy.

The rise in yields suggests markets are leaning toward a more inflationary scenario, driven by sustained energy shocks rather than a flight-to-safety rally that would typically push yields lower.

That divergence is notable. In past geopolitical crises, Treasurys have often benefited from safe-haven demand. The current environment is different: energy-driven inflation risks are offsetting that demand, keeping upward pressure on yields even as uncertainty intensifies.

Investors are also looking ahead to fresh economic data, including the final reading of the University of Michigan’s consumer sentiment index for March. The release will be closely watched for signs of how rising fuel costs and geopolitical tensions are feeding into household expectations.

The modest rise in Treasury yields captures markets in a holding pattern, caught between fragile diplomacy and the risk of escalation.