Stocks slide, bond rout deepens as US and Iran trade attacks - Reuters

The headline captures a rare market dynamic: equities are falling, yet bonds are also selling off. Typically, geopolitical conflict drives capital into government debt as a safe haven, pressuring yields lower. The current “bond rout” suggests investors are instead focusing on the potential economic fallout—specifically, the inflationary risk from disrupted energy supplies and the prospect of higher government spending on defense.

For markets, the combination of stock losses and rising yields indicates a repricing of growth expectations. A prolonged military exchange between the US and Iran could threaten shipping routes and elevate oil prices, which acts as a tax on consumption and corporate margins. At the same time, a deeper bond selloff signals that fixed-income investors may be demanding a higher premium to hold long-duration assets.

The key variable to watch is escalation. If attacks remain contained, equity losses may stabilize. Conversely, bond traders will monitor any sign of sustained conflict, as that would reinforce the inflationary narrative. Currency and commodity markets—particularly crude oil and the US dollar—are likely to provide the earliest clues on how markets are assessing the next phase.