Nasdaq slides, yields elevated as Mideast conflict fears grow
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 7, 2026. REUTERS/Jeenah Moon
Aug 18 : U.S. government bond yields eased slightly on Tuesday, though longer-dated yields remained near multi-year highs after the 30-year Treasury yield earlier touched a level not seen since 2007.
The move came as fears of an escalating Middle East conflict stoked inflation worries and weighed on stocks. The Nasdaq Composite ended down 1.33 per cent, the Dow Jones Industrial Average dipped 0.22 per cent and the S&P 500 fell 0.69 per cent.
Oil prices settled at their highest in more than three weeks after Iran said it would adopt a more offensive stance and the Strait of Hormuz would remain closed, while the United States ruled out extending a ceasefire.
Gains were limited, however, with Brent crude futures finishing up 15 cents, or 0.17 per cent, at $91.02 a barrel, while U.S. West Texas Intermediate crude futures closed up 44 cents, or 0.52 per cent, at $84.94 a barrel. Both contracts closed at their highest since July 24.
Treasury yields have risen despite soft U.S. economic data easing concerns about an imminent Federal Reserve rate hike. Traders now see just a 35 per cent chance of a hike at the Fed's September meeting but 69 per cent odds of an increase by December.
A resurgence in inflation could renew expectations for a faster pace of rate hikes.
"We're living in this world where we're going to have supply shock after supply shock," said Will Compernolle, macro strategist at FHN Financial.
The costs of the ongoing Iran conflict are also adding to fears over the U.S. fiscal trajectory.
The yield on the U.S. 30-year Treasury bond was last down 1.78 basis points at 5.2922 per cent, after reaching 5.3371 per cent, the highest since 2007. Benchmark 10-year note yields fell 1.2 basis points to 4.712 per cent and got to 4.7478 per cent, the highest since January 2025.
The rise in U.S. yields coincided with Japanese government bond yields climbing to 30-year highs, raising concerns among analysts that as Japanese yields become more attractive, investors in the country — particularly pension funds and insurance companies — could begin shifting capital out of U.S. debt and into Japanese bonds.
Such a shift would add further upward pressure on Treasury yields. Japan's 10-year bond yield was hovering just below the 3 per cent threshold for the first time since the mid-1990s, while euro zone bond yields also sat near multi-year highs.
MARKETS TURN CAUTIOUS
Wall Street's main indexes hit their lowest in two weeks, pressured by losses in heavyweight technology stocks.
"There's nothing that can crack a momentum rally quite like interest rates moving higher and you're getting evidence of that today," said Tony Welch, chief investment officer at SignatureFD.
Elevated yields tend to weigh on equities by making stocks relatively less attractive to investors, and by raising borrowing costs for companies pouring money into capital-intensive AI infrastructure.
The pan-European STOXX 600 index fell 0.69 per cent and MSCI's gauge of stocks across the globe dropped 0.77 per cent.
The CBOE Volatility Index, Wall Street's fear gauge, hit its highest in more than a week.
Investors are now turning their attention to Wednesday's release of the Fed's latest policy meeting minutes, as well as next week's Jackson Hole symposium, which will be closely watched for clues on how policymakers are interpreting recent economic data.
"Given the reduced information content of the FOMC's policy statement and Fed chair (Kevin) Warsh's press conferences, the minutes from the FOMC meetings arguably have become more important in conveying the balance of views among policymakers," said Jonas Goltermann, chief markets economist at Capital Economics.
The Federal Open Market Committee is the Fed's interest rate-setting body.
In currencies, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.13 per cent to 99.67, with the euro down 0.04 per cent at $1.1574. Against the Japanese yen, the dollar strengthened 0.13 per cent to 159.64.
Spot gold fell 1.61 per cent to $4,344.82 an ounce.
