US President Donald Trump declared the end of a ceasefire with Iran on July 8 ahead of a NATO summit, one day after US forces struck Iran again. Bond and commodity markets reacted immediately: the US 10-year Treasury yield climbed to 4.58%, rising 0.1 percentage points for the week, while Brent crude reached $78.85, up 9% for the week and approaching $80 for the first time since June 22. Japan's 10-year bond yield jumped to 2.9%, the highest level since 1996, despite no direct link to Iran. The ceasefire, formalized in a June 17 MOU between the US and Iran to end hostilities across all fronts and reopen the Strait of Hormuz, lasted only three weeks before collapsing. The fragility of the agreement reflects a strategic dilemma: leaving Iran unchecked allows its nuclear program and proxy forces to destabilize US Middle East order, while direct military action drives up oil prices and interest rates through disruption of the Strait of Hormuz, a chokepoint handling 20% of global oil consumption.
US-Iran MOU Collapsed Within Three Weeks
The conflict began February 28 with US and Israeli airstrikes on Iran. On June 17, the US and Iran signed an MOU to end all warfare, reopen the Strait of Hormuz, and dilute Iran's highly enriched uranium under International Atomic Energy Agency (IAEA) supervision. The agreement did not survive three weeks. Bob McNally, president of Rapidan Energy Group, told Reuters the breakdown signals "the ceasefire is not as solid as the market assumed." The US Treasury had authorized Iranian oil sales through August 21 but revoked the extension after recent airstrikes, moving the deadline forward to July 17.
Strait of Hormuz Oil Transit Fell 30% in Q1
Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, and Iran transport oil through the Strait of Hormuz with virtually no alternative routes. The US Energy Information Administration (EIA) reported that 20 million barrels per day, representing 20% of global consumption, passed through the strait in 2024. After the war began, transit volume dropped nearly 30% from 20.4 million barrels per day a year earlier to 14.6 million barrels per day in Q1. Saudi Arabia and the UAE maintain bypass pipelines with a combined capacity of 2.6 million barrels per day, covering less than half the shortfall. Reduced transit forced ships to delay passage or detour, extending shipping times and raising war-risk insurance premiums and tanker rates. The simultaneous increase in oil prices, freight costs, and insurance premiums spread energy cost pressures into consumer prices and corporate expenses.
US 10-Year Treasury Yield Rose to 4.58% Following Ceasefire Declaration
Under typical wartime patterns, capital flows into safe-haven assets like Treasury bonds, lowering yields. On March 3, four days after the conflict started, the US 10-year Treasury yield instead climbed to 4.12%. Market participants selling bonds outnumbered buyers based on the calculation that Strait of Hormuz closures would raise oil prices, which in turn would drive up inflation. This inverted reaction pattern persisted through July 8, when the yield reached 4.58% immediately after Trump's ceasefire declaration.
FAQ
What did Trump declare on July 8?
Trump declared the end of a ceasefire with Iran on July 8 ahead of a NATO summit, one day after US forces struck Iran.
How long did the US-Iran MOU last?
The MOU signed June 17 between the US and Iran collapsed within three weeks of its signing.
How much did oil transit through the Strait of Hormuz decline?
Strait of Hormuz oil transit fell nearly 30% from 20.4 million barrels per day to 14.6 million barrels per day in Q1 following the start of the conflict.
