Wall Street's main indexes fell on Friday, as inflation fears triggered by the Middle East conflict drove up Treasury yields and threatened to halt an AI-fueled rally. The yield on 10-year Treasury notes, a benchmark for global borrowing costs, hit 4.58% - its highest level since May 2025. Global bond yields also jumped as increasing evidence of economic damage from the Iran war prompted investors to assume interest rates will rise faster than expected and growth will suffer. The odds of the U.S. Federal Reserve hiking interest rates by 25 basis points in December have more than doubled over the past week to about 40%, according to CME Group's FedWatch tool, after hotter-than-expected inflation readings signaled price pressures may prove harder to contain.
"Markets are reacting to some of the recent inflation data, which has maybe been a bit higher than expected, and continued relative robustness in the economy," said Kiran Ganesh, Multi-Asset Strategist at UBS Global Wealth Management. "And so markets are pricing in some risk that central banks might feel the need to hike interest rates." Brent crude prices rose 2.4% to $108.28 a barrel after comments from U.S. President Donald Trump and Iran's foreign minister dented hopes of a quick end to the 2-1/2-month-old conflict in the Middle East.
