Brent crude briefly tops $100 as Middle East attacks rattle oil and bond markets

The bond market sell-off deepened on Thursday as Brent crude briefly topped $100 per barrel for the first time since late May, driving U.S. Treasury yields higher and intensifying fears that energy-driven inflation will force the Federal Reserve to raise interest rates.

Oil Spikes on Middle East Escalation

Brent crude surged more than 6% during Thursday's session to touch $100.28 per barrel before retreating below that threshold, according to market data. The rally was fueled by a convergence of supply threats: Houthi militants claimed responsibility for attacks on two Saudi oil tankers in the Red Sea, while continued strikes on vessels in the Strait of Hormuz and renewed U.S. military action against Iran compounded fears of prolonged disruption to global energy flows.TRADING ECONOMICS+2

Brent prices have climbed more than 13% this week alone, with analysts attributing the move to geopolitical risk premiums rather than improved demand. Naeem Aslam, chief investment officer at Zaye Capital Markets, said the advance is "being driven mainly by a larger geopolitical supply premium rather than a sudden improvement in global fuel consumption".rigzone.com

Treasury Yields Climb as Inflation Bets Rise

The 10-year Treasury yield, which stood at 4.66% on Tuesday — already its highest since May — continued climbing Thursday as investors demanded higher compensation for inflation risk. The 30-year yield rose to 5.18%, up 0.34 percentage points over the past month and its highest since the bond market rout in May.TRADING ECONOMICS+2

The sell-off reflects a market increasingly convinced that the Fed's next move will be a rate hike rather than a cut. Reuters reported in June that traders see roughly an 80% probability of a rate increase at the Fed's September meeting. On Polymarket, bettors currently assign a 66% chance of at least one Fed rate hike in 2026.Reuters+1

The Fed's Bind

The Federal Reserve held its benchmark rate at 3.5% to 3.75% in March and signaled one cut this year, but that outlook has grown stale as oil prices have surged roughly 36% over the past 12 months. The central bank's preferred inflation gauge hit a three-year high in June, according to Reuters, and the oil shock threatens to push prices higher still.TRADING ECONOMICS+1

Morgan Stanley ↘ 0.33% strategists have warned that "energy-driven inflation and policy uncertainty continue to weigh on long-end Treasuries". The bond market's message is clear: with Washington and Tehran ruling out near-term peace talks, investors see no catalyst for relief.Yahoo