USD Yields Rise on Inflation Fears as US-Iran Conflict Lifts Energy Prices

US Treasury yields have climbed sharply despite the risk-off environment triggered by the escalating US-Iran conflict, with the 10-year yield rising 5 basis points to 4.107% on Tuesday. The counterintuitive move reflects growing inflation concerns as energy prices surge amid Middle Eastern tensions, overshadowing the typical flight-to-safety bid that would normally suppress yields. Bond traders appear to be pricing in the inflationary impact of sustained higher oil and gas prices rather than seeking refuge in government debt. This dynamic has significant implications for USD pairs, as rising real yields typically support dollar strength while simultaneously weighing on risk-sensitive currencies like AUD and NZD. The divergence between equity market risk aversion and rising bond yields creates a complex backdrop for forex traders. Near-term, the 4.15% level on the 10-year represents key resistance, and a breach could accelerate dollar bullishness. Traders should monitor crude oil prices and any diplomatic developments in the Strait of Hormuz for directional cues across major pairs.