US Treasury yields climbed sharply on Tuesday as geopolitical instability in the Middle East reignited fears of a hawkish pivot by the Federal Reserve.
The repricing marks a stark reversal from the prevailing easing bias, driven by concerns that an intensifying crisis involving Iran could trigger a supply-driven inflation shock.
Traders are rapidly adjusting their expectations for Federal Reserve policy.
CME FedWatch data indicates a significant increase in the probability of a rate hike at the September meeting, a move that had been largely priced out of the market in recent weeks.
The shift reflects growing anxiety that persistent geopolitical risk could force the central bank to prioritize inflation containment over growth support.
The prospect of a hawkish pivot has returned to the forefront of market sentiment.