\n That energy spike is reinforcing inflation worries in a bond market already nervous<\/a> about America\u2019s $40 trillion mountain of debt<\/a>. The yield on the benchmark 10-year Treasury, which is a measure of how much the US government pays to borrow more money, climbed on Wednesday to the highest level in nearly three years.<\/a>\n <\/p>\n \n The bond market stress will make it more expensive for consumers to get a mortgage, for businesses to borrow and for Washington to pay the bills.\n <\/p>\n \n The risk is that this situation morphs into a doom loop, where the more the war intensifies, the more it will spook the bond market and slow the economy and stocks.\n <\/p>\n \n \u201cIt feels like there is no end to the inflation problem, the war or the deficit in the near term,\u201d said Hardika Singh, economic strategist at Fundstrat, an investment research firm.\n <\/p>\n \n The stock market gets most of the headlines, but the real power lies in the bond market. And bond market investors around the world have not been shy about flexing their muscles this summer.\n <\/p>\n \n In Germany, the 10-year yield recently hit levels unseen since 2011. The UK\u2019s 30-year yield hit its highest since 1998. In Japan, which is suddenly dealing with a burst of inflation after decades of no inflation, the 10-year government bond crossed a 3% yield for the first time since 1996.\n <\/p>\n \n Higher bond yields are stealing thunder from stocks by providing what is traditionally thought of as a risk-free alternative. Since the US government has always paid its debts, the closer the US 10-year gets to 5%, the harder it is to justify buying tech stocks with historically high valuations that might come down.\n <\/p>\n \n When President Donald Trump shocked the world in late February by striking Iran, US officials stressed the conflict would be short, measured in weeks, not months.\n <\/p>\n \n But now the war has dragged out for more than six months, disrupting the flow of energy out of the most critical supply region in the world. That\u2019s forced investors to reprice energy, inflation and bonds.\n <\/p>\n \n Workarounds \u2013 including sneaking oil tankers out of the Persian Gulf<\/a> and China slashing its oil imports \u2013 have limited the damage. But the damage still exists.\n <\/p>\n \n Last month was the most expensive August for gas prices in US history, according to AAA. Diesel, a crucial fuel for the economy, has spiked 51% since the war started.\n <\/p>\n \n The longer the war lasts, the more it will push up already-elevated inflation and bond yields.\n <\/p>\n \n \u201cThis becomes a circular argument unless and until there is a credible way to get out of this war,\u201d said Art Hogan, chief market strategist at B. Riley Wealth Management.\n <\/p>\n \n Investors suspect the Federal Reserve will seriously have to consider raising rates at its policy meeting later this month. Even Fed Chairman Kevin Warsh sounds more open<\/a> to acting soon.\n <\/p>\n \n \u201cThe bond market can stop panicking when the Fed starts panicking,\u201d said Hogan. \u201cIf the Fed shows they\u2019re willing to start this battle with inflation, perhaps Treasury yields will cool off.\u201d\n <\/p>\n \n Another problem for the bond market: Wars cost money \u2013 and those costs are typically not budgeted for.\n <\/p>\n \n The conflict with Iran is costing the United States billions of dollars in additional defense spending, forcing yet more borrowing.\n <\/p>\n \n Again, this is a global phenomenon.\n <\/p>\n \n Europe, Japan, and South Korea have all ramped up their defense spending due to various global threats.\n <\/p>\n \n \u201cSadly, it looks like the world has entered a new set of forever wars \u2013 and that\u2019s very expensive,\u201d said David Kelly, chief global strategist at JPMorgan Asset Management.\n <\/p>\n \n Higher bond yields typically slow the economy by raising the cost of capital.\n <\/p>\n \n Corporations have to pay more in interest for every factory they want to open. Small businesses are facing higher loan costs when they\u2019re considering expansion.\n <\/p>\n \n Washington itself is hurt by higher interest on the national debt, which last month hit $40 trillion for the first time ever.\n <\/p>\n \n The United States has spent $931 billion on net interest<\/a> so far this fiscal year alone, well ahead of the $804 billion spent on the national defense, according to Treasury.\n <\/p>\n \n Over the next decade, US net spending on interest is expected to surpass $16 trillion, according to the Peter G. Peterson Foundation, a fiscal watchdog group. That\u2019s roughly triple the amount of credit card, student debt and car loans Americans owe.<\/a>\n <\/p>\n \n \u201cThat is a conservative estimate, and those costs could be higher if rates rise further,\u201d the Peterson Foundation wrote in a report<\/a> on Wednesday.\n <\/p>\n \n Uncle Sam faces also new competition on the borrowing front from companies pouring money into artificial intelligence infrastructure.\n <\/p>\n \n Tech companies are spending trillions of dollars to build out the expensive AI boom, as they put up data centers all over the world \u2013 and much of that is being financed through the bond market, crowding out Washington\u2019s own borrowing needs.\n <\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/ie\/wp-content\/uploads\/2026\/09\/gettyimages-2292567581.jpg\")
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