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May 26, 2026
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PRESIDENT Donald Trump’s resolve on Iran is being tested by a force largely beyond his control: the bond market.
As yields rose rapidly over the last week, a White House official said there was significant anxiety among staff over gasoline prices and where the bond market is headed, with fuel prices the biggest source of anxiety right now.
Higher yields mean elevated borrowing costs for businesses and consumers while rising oil prices push up inflation expectations. That mixture can cause headaches for the administration as it prepares for midterm elections in November.
“The markets are showing him pain, and he has to figure out how to unwind that – and it’s not that easy,” said Greg Faranello, head of US rates strategy at AmeriVet Securities in New York.
“We’re at levels that ultimately will spill over into mortgage rates and it’s going to spill over into the housing market.”
Trump said on Saturday that Washington and Iran have been making progress on a peace deal in the three-month-old war, although on Sunday he emphasised there was no rush for a deal, dampening hopes of an imminent breakthrough.
“I do think that if the administration is worried about higher yields, then trying to de-escalate the situation with calmer words is something they can do,” said Shawn Snyder, economic strategist at Potomac Fund Management in Maryland.
He added that market prices are responsive to comments from Trump about a resolution to the war.
Over recent weeks, US Treasury investors have focused on the elusiveness of a deal and long-term consequences of the war, lifting yields well above 4.5% on the benchmark 10-year note.
Meanwhile, Federal Reserve officials looking to squash inflation have discussed the possibility of raising interest rates.
Some Republicans are growing concerned at some of Trump’s calls for spending ahead of the midterm elections which will decide if they maintain thin control of the House and Senate.
Rising Treasury yields feed into borrowing costs across the economy, including mortgages, credit cards and business loans. It can cause financial stability issues.
US Treasury Secretary Scott Bessent and the White House suggested that elevated yields would prove temporary.
The 10-year yield touched 4.69% last week, the highest since January last year. It has surged more than 50 basis points since the Feb 28 start of the US-Israeli war with Iran, and was last at 4.56%. Reaction to the latest progress on peace is yet to be seen in the market.
A sustained rise in borrowing costs could cool housing demand, weigh on consumer spending and, in a worst-case scenario, tip the economy toward recession.
That risk could prove especially significant heading into the midterm elections.
“Affordability is a buzzword in Washington and for good reason as affordability resonates with households and interest rates drive a lot of it,” said John Kerschner, global head of securitised products at Janus Henderson in Denver.
Still, if a peace deal is ultimately brokered, the effects could be transient.
This week, Bessent said elevated yields, especially at the long end of the curve, were being driven by the Iran war energy shock that will prove temporary..
The White House also said any disruption was likely to be short-lived.
“President Trump has always been clear about temporary market disruptions as a result of ‘Operation Epic Fury’,” White House spokesman Kush Desai said.
He added the administration was still focused on Trump’s “long-term agenda of accelerating economic growth, cutting red tape, and slashing fraud in government spending to restore fiscal health”.
The bond market has long been a powerful political force shaping policy in Washington, which must maintain investor confidence to finance government debt.
When investors lose faith, rising borrowing costs can pressure leaders..
Former president Bill Clinton’s adviser James Carville told the Wall Street Journal in the early 1990s that he wanted to be reincarnated as the bond market, because “you can intimidate everybody”.
Market participants have warned that Washington’s ability and willingness to respond may be limited.
Intervening too aggressively in that environment risks undermining credibility on inflation and could exacerbate pressures pushing yields higher. — Reuters
Gertrude Chavez-Dreyfuss and Nandita Bose write for Reuters. The views expressed here are the writers’ own.
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The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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