Stocks and bonds fall as oil surges after Trump says Iran deal is over

Oil prices surged and global stocks and bonds fell on Wednesday after U.S. President Donald Trump said the memorandum of understanding that had provided a framework for the ceasefire with Iran was over, following overnight attacks between the two sides.

Speaking at a NATO summit in Ankara, Trump declared the MOU void, sending oil prices up 5% to $78 a barrel. European stocks dropped 1.1%, while U.S. equities were modestly lower, with the Nasdaq down 0.6%. Government bond yields rose as investors rotated out of fixed income, and the dollar strengthened. The move reflects a sharp repricing of geopolitical risk, with energy costs expected to feed into inflation expectations and central bank policy calculations. The Federal Reserve operates under a dual mandate of maximum employment and stable prices; a sustained oil price spike could push inflation above the 2% target, complicating rate decisions. Historically, such supply shocks have led to yield-curve steepening as near-term inflation expectations rise, while term-premium decomposition shows investors demand higher compensation for holding long-duration bonds amid uncertainty. Additionally, swap spreads may widen as hedging costs increase, and the ECB's transmission protection instrument (TPI) could be tested if euro-area bond markets come under stress. Traders can track the latest moves in oil, equity indices, and bond yields on NowPrice's live rates dashboard.

Looking ahead, markets will focus on any further developments in U.S.-Iran tensions, as well as upcoming U.S. inflation data and Federal Reserve commentary. A sustained rise in oil prices could complicate the Fed's path on interest rates, potentially delaying rate cuts if inflation pressures persist. The next key data point is the U.S. consumer price index release later this month. Balance-sheet impacts are also relevant: if the Fed needs to adjust its quantitative tightening pace to manage liquidity, that could affect short-term rates. The yield curve, which has been inverted since mid-2022, may normalize if long-term yields rise faster than short-term yields, but a sharp inversion could signal recession risk. Investors should monitor the 2-year/10-year spread and real yields for clues on market expectations. The ECB's TPI, designed to prevent unwarranted bond market fragmentation, could be activated if geopolitical tensions spill over into peripheral spreads. Overall, the interplay between energy prices, central bank credibility, and growth outlook will dictate the next phase for rates markets.