Borrowing costs are surging amid Iran war

The Iran war is driving up U.S. borrowing costs across the board, with the 10-year Treasury yield jumping from 3.96% to 4.45% since the U.S. and Israeli attack on Iran, and 30-year mortgage rates rising to 6.62% from 5.99% in late February. Weak demand at three government debt auctions this week forced the Treasury to offer higher yields to attract buyers, signaling investor concern over future federal borrowing needs and economic volatility. Higher rates are pressuring the already-struggling housing sector, increasing the government's fiscal burden, and potentially dampening business investment and consumer spending. Investors are pricing in less inflation risk than the yield increases alone suggest—only about a fifth of the rise reflects anticipated inflation—meaning most of the increase reflects a "term premium" tied to uncertainty about prolonged war disruption, federal borrowing demands, and potential Fed tightening. Traders have shifted their bets to assign a 40% probability that the Fed will raise rates by year-end rather than cut them, despite no recent signals from Fed leadership suggesting that shift.