Oil Mixed, Government Bonds Fall as Trump Steps Up Threats Against Iran -- Update

By Ronnie Harui and Kimberley Kao

Oil futures were mixed while government bond prices fell as Iran fired missiles and drones into Gulf countries and Israel after President Trump stepped up his threats against Iran, intensifying concerns over supply disruptions in the Middle East.

Government bond prices were weighed by concerns that higher oil prices could stoke inflation and spur central banks to hike interest rates faster or pause rate cuts for longer.

Trump threatened to destroy all of Iran's power plants if the nation's leaders don't agree to reopen the Strait of Hormuz by Tuesday evening. "If they don't come through, if they want to keep it closed, they're going to lose every power plant and every other plant they have in the whole country," Trump said in an interview with The Wall Street Journal on Sunday.

Monday marks the end of a 10-day deadline Trump gave Iran last month to make a deal and open the Strait of Hormuz, through which around 20% of the world's oil is transported. In a WSJ interview, Trump moved the deadline to Tuesday, and on Sunday afternoon, without elaboration, Trump posted "Tuesday, 8:00 P.M. Eastern Time!"

Front-month Brent crude oil futures rose 0.5% to $109.57 a barrel in Asian trade on Monday, according to ICE data. Front-month West Texas Intermediate crude oil futures were 0.2% lower at $110.88 per barrel.

"The persistence of threats to critical Iranian infrastructure keeps escalation risks elevated, with no credible de-escalation path in sight," Lloyd Chan, senior currency analyst at MUFG said in a note. "Oil prices are likely to remain elevated, with risks skewed toward further upside," Chan said.

The yield on 10-year Japanese government bonds rose 2 basis points to 2.400%, the highest intraday level since February 1999, according to data provider Quick. The yield on 10-year U.S. Treasurys rose 4 basis points to 4.3575%, according to FactSet data. Bond yields move inversely to prices.

"Markets continue to be roiled by the heightened uncertainty surrounding this unprecedented Middle East geopolitical tensions that wreak havoc not only in terms of dis-anchoring steady inflation into an unprecedented built-up in the inflation expectations but also brings about supply disruption risks that could put already weakening growth prospects at further risks," UOB's Global Economics & Markets Research team said in a note.

Meanwhile, the equities markets were higher in holiday-thinned trade with the Nikkei Stock Average closing 0.5% higher at 53413.68 and South Korea's Kospi up 1.4% at 5450.33. Markets in China, Hong Kong, Taiwan, Australia, and New Zealand are closed Monday for a holiday.

Spot gold was 0.4% lower at $4,657.86 per troy ounce.

"Gold prices are currently experiencing sharp volatility and noticeable pressure, in a market environment that at first glance appears to contradict the traditional principles that have long governed the metal's behavior as a safe-haven asset during times of crisis," said Simon Massabni, head of business development at XS.com. Investors are changing how they respond to risk, with assets like the U.S. dollar favored over gold due to greater liquidity and convertibility, Massabni said.

Higher bond yields also reduce the attractiveness of gold as a non-yielding asset, Massabni said.

Write to Ronnie Harui at [e-mail] and Kimberley Kao at [e-mail]

(END) Dow Jones Newswires

04-06-26 0341ET