White House officials now expect Iran peace negotiations to extend beyond Sunday's deadline, with a senior US official stating that the agreement may take several days to gain approval from Iranian leadership, including the Supreme Leader. As reported by PANews citing Axios, US officials are optimistic that the agreement will be signed within days, but acknowledge it remains unfinalized and could still fall apart. Trump stated on social media Sunday that he had told delegates not to rush into a deal, emphasizing that "both sides must take time to get things done." The extended timeline adds uncertainty to market expectations about when war-related inflation pressures might ease. A second senior administration official confirmed that the proposed framework would give negotiators 60 days to reach a final deal, providing a clearer timeline for the ongoing negotiations.
According to Bloomberg analysis, real yields in the US have had a greater impact on longer-term borrowing costs than war-related inflation fears. As reported by Bloomberg, strategists at ING Bank NV, Goldman Sachs Group Inc., and Barclays Plc suggest that recent jumps in long-term yields will not fully reverse even if inflation from the Iran war retreats. Jonathan Hill, head of US inflation strategy at Barclays, noted that the interaction between rising debt levels, potentially higher neutral rates, and AI investment boom could be driving real rates higher, rather than just inflation concerns. The analysis indicates that bond investors aren't just worried about price pressures from the Iran war, with real yields serving as the primary driver of overall yield movements. The speculation, underscored by Bloomberg analysis, is that the recent jump in some long-term yields will not fully reverse even if the inflation spurred by costlier oil retreats, maintaining pressure on governments and economies around multiyear highs.
Despite oil price surges capturing headlines, break-even rates measuring inflation expectations haven't risen as far as overall rates in the US and UK. According to Bloomberg data, 10-year breakevens in the US are 50 basis points below where they were in the first half of 2022, when the Fed was raising rates. The 5-year, 5-year breakeven rate, a proxy for medium-term inflation expectations, remains around 2.2% where it was in December. Bank of America Corp. economists Claudio Irigoyen and Antonio Gabriel are monitoring yield curve shifts to determine what's moving bond markets, noting that the long end becomes more sensitive to potential Fed rate hikes amid rising debt servicing costs. The controlled inflation expectations suggest that war-related price pressures haven't translated into sustained inflation expectations among market participants, even with the war underway.
As reported by Bloomberg, rising real yields explain most of the move higher in overall yields in the US, while inflation is the major influence in Japan and Germany. ING's Padhraic Garvey estimates that the entire break in 10-year US yields beyond 4.5% comes from higher real yields, with the US benchmark nearing 4.70% before pulling back to 4.56%. Goldman Sachs' Phillip Lee attributes persistent fiscal deficits, more Treasury issuance, and concerns over debt sustainability as reasons investors demand extra compensation for long-term debt. JPMorgan Chase CEO Jamie Dimon indicated US interest rates may climb further due to government borrowing concerns. The analysis suggests that rising real yields serve as a barometer for fiscal sustainability and economic growth prospects, rather than purely inflationary pressures. ING's Garvey emphasizes that the argument that duration is selling off globally due to inflation fears is hard to square with market pricing of medium- and long-term inflation risk.
Bond investors are increasingly betting that long-term borrowing costs will remain stubbornly high even if oil prices cool and Middle East tensions ease, according to Bloomberg News reporting. A growing number of strategists and economists argue that the recent jump in long-term yields will not fully reverse even if the inflation spurred by costlier oil retreats, maintaining pressure on governments and economies around multiyear highs. In Japan and Germany, rising break-even rates have accounted for most of the increase in 10-year yields since the war began, while in the UK, political uncertainty under Keir Starmer could result in more expansive fiscal policy and gilt issuance. Federated Hermes' John Sidawi noted that investors must be tactical trading gilts due to embedded premiums from political uncertainty, as interest rates are determined by the balance between global saving and investment. The speculation underscores that the mounting chance central banks such as the Federal Reserve will raise rather than cut interest rates is contributing to the elevated borrowing costs.
