Global uncertainty is rising, but this time investors aren’t rushing into bonds for safety. They’re selling them. Historically, geopolitical turmoil triggered a “flight to safety,” with investors buying government bonds and pushing yields lower. But today’s conflicts threaten global energy supplies, meaning greater uncertainty also means higher oil prices, more inflation and potentially higher interest rates.
Driving the news: The U.S. and Iran appear further from a lasting agreement as tensions surrounding the Strait of Hormuz intensify.
- Reuters’ Steve Holland and Jacob Bogage report that President Trump responded Monday to Iran’s conditions for a peace agreement with new demands that Tehran compensate victims of wars, attacks and protests an escalation that could further complicate negotiations.
- Meanwhile, the Wall Street Journal’s Summer Said and Benoit Faucon report that Persian Gulf energy producers are increasingly preparing for the possibility that Iranian control over the Strait of Hormuz becomes permanent, potentially disrupting global oil and gas supplies indefinitely.
- Gulf nations reportedly dislike the proposed arrangement giving Iran oversight of inbound ships, but see it as preferable to renewed U.S.-Iran fighting that could put their own energy infrastructure at risk.
Zoom out: Europe isn’t offering much relief. Ukrainian President Volodymyr Zelenskyy warned that Russia appears to be preparing for an escalation rather than peace, pointing to increased ballistic missile production, North Korean equipment and preparations for mobilization.
- Reuters also reports that Russia’s northern NATO neighbors are increasing security around dams, power plants and natural-gas infrastructure amid concerns Moscow could stage a “false flag” attack involving Ukrainian drones.
Why it matters for mortgage rates: Bond investors are increasingly viewing geopolitical turmoil through the lens of inflation rather than safety. If conflicts threaten energy supplies, oil prices rise. Higher energy costs can eventually filter through transportation, manufacturing and consumer prices, forcing investors to demand higher yields to compensate for inflation.
- And when Treasury yields rise, mortgage rates typically follow.
The bottom line: The old playbook said war and uncertainty were good for bonds. Today’s market is increasingly saying the opposite: If geopolitical uncertainty means persistently higher oil prices, it also means higher inflation risk, higher bond yields and potentially higher mortgage rates.