MW A bad Treasury auction is offering a glimpse into the anxiety on Wall Street over the Iran war
By Joy Wiltermuth
There's a $70 billion 5-year Treasury auction set for Wednesday that will be in focus
President Donald Trump looks on as Defense Secretary Pete Hegseth speaks about the Iran war on Tuesday in the Oval Office.
Wall Street jitters about the Iran war spilled over Tuesday into a vital part of U.S. financial markets that typically hum along without a hitch.
Reports of Pentagon plans to deploy roughly 3,000 soldiers from the Army's 82nd Airborne Division to the Middle East were blamed Tuesday for a weak $69 billion sale of 2-year Treasury notes.
Typically, 2-year auctions go largely unnoticed beyond the dealers and buyers involved in the roughly $30 trillion Treasury market. It's often a place where safe-haven seekers and corporations can park cash for a while and earn a bit of yield. The auction starts and buyers line up.
But Tuesday's auction went "miserably," making it hard not to notice, with yields on the policy-sensitive 2-year rate BX:TMUBMUSD02Y advancing 9.6 basis points during the session to 3.926%, its highest yield in nearly eight months, according to Dow Jones Market Data. The rate now is 45 basis points higher in 2026.
Treasury yields typically fall, not rise, when the Federal Reserve is engaged in a rate-cutting cycle.
The recent yield climb reflects growing concern about dimming hopes for further Fed rate cuts this year, and potentially rate hikes. A prolonged Iran conflict could mean oil prices stay higher for longer, and risks inflation becoming a bigger problem the longer that hostilities drag on.
Brent crude prices (BRN00) settled above $104 a barrel on Tuesday before easing in extended trade. U.S. stocks SPX closed lower, while Treasury yields BX:TMUBMUSD10Y climbed across the board. Oil prices fell in extended trading on Tuesday, following Israeli news reports that said a 30-day cease-fire could be announced. Crude prices were lower early Wednesday and stocks pointed to a bounce.
Still, the Treasury raised almost $70 billion to help fund the U.S. government on Tuesday, paying slightly less than 4%. The U.S. has an estimated $10 trillion in debt coming due in the next year, and it's costing more to borrow in the open market as the Iran conflict moves through its fourth week. There's a $70 billion 5-year Treasury auction set for Wednesday.
This comes as Wall Street grows alarmed about the possibility of U.S. troops on the ground in the Middle East, which could lead to a more protracted conflict. It could also mean even higher oil and gas prices are in play, as well as increased costs for fertilizer, transportation and many products based on petrochemicals. Furthermore, rising yields increase borrowing costs and tighten financial conditions.
"The market is starting to doubt that this is going to be easy," Ameriprise chief market strategist Anthony Saglimbene said in a phone interview. He pointed to economic data on Tuesday that suggested the surge in oil prices has already put more stress on the U.S. economy in the form of higher prices and a drop in employment.
Read: The Iran war spills over into the U.S. economy: Inflation rises and growth slows
"I'd expect stocks to struggle until there's more clarity on the Middle East, and crucially around the Strait of Hormuz," Saglimbene said.
-Joy Wiltermuth
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(END) Dow Jones Newswires
March 25, 2026 08:48 ET (12:48 GMT)
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