A sharp rebound in oil prices has reignited concerns about inflation and market volatility, prompting investors to reassess interest rate expectations after US President Donald Trump declared that an interim agreement with Iran aimed at ending the conflict was "over," according to Reuters.The comments triggered an immediate reaction across global financial markets: oil surged, bond yields climbed, and volatility gauges jumped as traders priced in the possibility of renewed inflationary pressures. Inflation-sensitive assets such as government bonds and gold came under pressure as investors recalibrated expectations for monetary policy.Oil back in focusCrude oil was the first asset to react, with prices jumping as much as 6% on Wednesday to their highest level in two weeks. Brent crude was last trading around $78.8-$79 a barrel, supported by renewed concerns over potential supply disruptions in the Middle East after fresh U.S. strikes on Iran.Oil prices had fallen sharply after the United States and Iran signed an initial memorandum of understanding in June, allowing the reopening of the Strait of Hormuz. That move released supplies from tankers stranded in the Gulf, creating a temporary oversupply that weighed on prices.Investors are now watching whether renewed geopolitical tensions will discourage shipping activity through the Gulf and tighten oil supplies once the temporary glut fades.AI concerns add to market uncertainty.The geopolitical developments come at a delicate time for equity markets, where investors were already questioning the sustainability of the artificial intelligence-driven rally.Memory chip manufacturers have experienced a volatile correction since early June, with an exchange-traded fund tracking the sector falling nearly 8%, while the Philadelphia Semiconductor Index has declined around 5%.Broader equity markets have remained more resilient. The equal-weight S&P 500, which reduces the influence of the largest technology stocks, has gained nearly 3%, while Europe's STOXX 600 index has advanced about 4%, reflecting stronger performance outside AI-focused sectors.Bond markets price in higher ratesGovernment bond yields climbed sharply as rising oil prices led traders to raise expectations for inflation and interest rates.Euro zone inflation expectations for one year ahead rose, while traders increased their expectations for further policy tightening by major central banks, including the European Central Bank, the U.S. Federal Reserve and the Bank of England.Short-term government bonds, which are particularly sensitive to changes in monetary policy expectations, recorded the largest moves. Two-year government bond yields in Germany and Britain climbed around 10 basis points to their highest levels in nearly a month, while equivalent U.S. Treasury yields rose about 5 basis points.Despite the renewed concerns, markets continue to expect U.S. inflation to ease significantly over the coming year compared with recent levels.Volatility returnsAfter several weeks of relatively calm trading, volatility indicators moved sharply higher following Trump's comments.The CBOE Volatility Index (VIX), which had largely returned to pre-war levels earlier this month, climbed as investors sought protection against renewed uncertainty. Similar increases were seen in measures tracking bond and currency market volatility.Markets with significant exposure to semiconductor stocks, particularly South Korea and Taiwan, continued to exhibit especially elevated volatility.Gold fails to regain safe-haven appeal.Gold, traditionally considered a hedge against geopolitical uncertainty and inflation, remained under pressure despite the renewed tensions.Spot gold was last trading near $4,074 an ounce, recovering modestly from earlier losses but still failing to attract significant safe-haven demand. According to Reuters, investors instead focused on a stronger U.S. dollar and expectations that central banks could keep interest rates higher for longer, limiting bullion's appeal despite escalating geopolitical risks.