Oil Price Surge Boosts Treasury Yields as Markets Eye Inflation Reports

Oil prices rose above $85 per barrel after the lack of a deal to revive the Strait of Hormuz, causing stocks to fluctuate and bond yields to rise. The S&P 500 experienced volatility following its record-breaking run, while short-dated Treasuries underperformed.

The dollar gained value as the yen fell almost 1%. President Donald Trump stated that he is prepared to let economic pressure on Iran build rather than launch fresh military strikes to force a reopening of the Strait. This approach may lead to higher energy costs and increased concerns about inflation, potentially forcing the Federal Reserve to raise interest rates.

Markets are anxious ahead of key inflation reports, with some experts suggesting that even low consumer price index (CPI) prints may not be enough to alleviate concerns about above-target inflation. The closely watched CPI is expected to rise 0.1% in July after a 0.4% decline in the previous month.