Bond selloff hits US futures as West Asia crisis fuels inflation fears

US stock futures slipped on Monday, signalling a return to losses after a record-setting week, as escalating Middle East tensions, surging oil prices and rising Treasury yields rattled investor sentiment ahead of a crucial earnings week led by chip giant NVIDIA.

Dow Jones Industrial Average futures fell 0.7%, or more than 350 points, while S&P 500 and Nasdaq 100 futures declined 0.5% and 0.4%, respectively, extending Friday’s sharp selloff. Earlier in the session, Dow futures were down about 186 points.

The pressure on equities intensified as the benchmark 10-year Treasury yield briefly crossed the 4.6% mark before easing slightly, while the 30-year Treasury yield touched its highest level in nearly a year.

Bond yields also surged globally, with the UK’s 30-year Gilt yield climbing to levels last seen in the late 1990s and Japanese long-dated bond yields continuing their upward march.

The spike in yields hammered technology stocks on Friday, with the Nasdaq-100 tumbling 1.5% in its worst single-day performance since March 27. The selloff came after the S&P 500 and Nasdaq had scaled fresh record highs last week, while the Dow briefly reclaimed the 50,000 mark.

Markets remained on edge as geopolitical tensions between the US and Iran showed little sign of easing. Brent crude futures crossed $110 per barrel, while West Texas Intermediate traded above $105, fuelling fresh inflation concerns and adding pressure on equities.

Investor anxiety deepened after reports of a drone attack on a UAE nuclear power plant and renewed rhetoric from US President Donald Trump, who warned Iran to “get moving” or there “won’t be anything left”. Peace negotiations between Washington and Tehran reportedly remain deadlocked.

Separately, a source close to Iran’s negotiating team reportedly claimed the US had proposed a temporary waiver on Iranian oil sanctions during ongoing talks. However, Iran is still seeking a complete removal of sanctions, while Washington is said to favour a temporary suspension of OFAC sanctions until a final agreement is reached.

The inflationary impact of elevated oil prices has further dampened hopes of near-term interest rate cuts by the US Federal Reserve. Ed Yardeni, president of Yardeni Research, said markets now expect rates to stay “higher for longer”, adding that the macroeconomic backdrop no longer supports an easing bias.

Investors are also bracing for a heavy earnings week that could offer fresh clues on the health of the US consumer amid persistent inflation concerns. Retail giants Target and Walmart are slated to report earnings on Wednesday and Thursday, respectively.

However, the spotlight will remain firmly on Nvidia’s quarterly earnings, due Wednesday, which are expected to test the durability of the artificial intelligence-driven rally that has powered US markets to record highs in recent months.

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Meanwhile, Asia-Pacific markets largely ended lower on Monday amid fears of disruptions to global oil supplies. Japan’s Nikkei 225 fell nearly 1%, Hong Kong’s Hang Seng dropped more than 1%, while Australia’s ASX 200 slid over 1.4%. India’s Nifty 50 also edged lower.