War Concerns Cloud Markets, US Treasury Panic Gauge Hits Nine-Month High

U.S. Treasury volatility rises to a nine-month high, fueled by Iran war escalation and inflation concerns, overturning traders’ expectations for Federal Reserve policy paths.

The ICE U.S. Treasury Volatility Index, often called the “fear gauge” of the bond market, rose to its highest level since June. Rising oil prices have heightened inflation worries, hurt real yields on U.S. Treasuries, and dampened their safe-haven appeal.

Both U.S. President Donald Trump and Iran have issued tough rhetoric regarding the conflict, increasing uncertainty about its duration. The 30-year U.S. Treasury yield, sensitive to inflation and government spending dynamics, has climbed to its highest in a month, with traders reducing bets on a Fed rate cut in 2026.

“As bond investors, we need to start considering the possibility of stagflation; it always creates significant uncertainty,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management.

Since the Iran conflict erupted two weeks ago, bond prices in the U.S., Japan, Australia, and other countries have declined as investors focus on the impact of rising oil prices on the global economy. The trend in U.S. Treasuries has set the tone for global government bonds, with yields continuing to rise as investors bet that central banks may need to hike rates sooner to curb inflation.

“Given the current inflation environment, bonds are not serving as a safe haven,” said Chris Weston, head of research at Pepperstone Group. “Markets are increasingly leaning toward the view that this situation could persist longer and have more pronounced effects on inflation and central bank policies.”