SynopsisTreasury yields increased as U.S. and Iran hostilities escalated. Crude oil prices surged, fueling inflation worries and complicating Fed outlook. Investors now anticipate a potential September interest rate hike by the Federal Reserve. Federal Reserve Chair Kevin Warsh's comments also influenced market expectations. The bond market reacted to these signals, reflecting economic uncertainty.AgenciesLonger-dated U.S. Treasury yields were higher on Monday, as hostilities between ​the U.S. and Iran flared after military attacks resumed and investors weighed comments last week from Federal Reserve Chair Kevin Warsh.Crude oil prices jumped after U.S. forces struck two Iranian launchers on Iran's Larak Island on Sunday, a U.S. official said, marking the first known American strikes on Iran since late ‌July. Iran responded ⁠by attacking ⁠U.S. forces stationed in Jordan, according to a Fox News reporter on Sunday, citing a U.S. source.However, Iran is still seeking a negotiated solution to its conflict ​with the U.S., President Masoud Pezeshkian said on Monday.U.S. crude rose 3.38% to $86.24 a barrel and Brent climbed to $91.20 per barrel, up 3.52% ​on the day.Persistently high crude prices since the war with Iran began have fanned inflation worries, with investors attempting to gauge when the Fed will raise interest rates to dampen price pressures.CRUDE PRICES COMPLICATE FED OUTLOOK"Crude being back up complicates the inflation ​picture, especially if that's sustained," said JoAnne Bianco, partner and senior investment strategist at BondBloxx ⁠Investment Management in ‌Chicago."If today's move is any indication, investors may continue to have some doubts. There's still a ​lot of uncertainty ​about what Fed policy will actually be and what they'll do in September and beyond, so I ⁠think that's the reason why you probably could see just a higher risk ​premium needed."The yield on the benchmark U.S. 10-year Treasury note rose 3.8 basis points to ​4.764%, its highest since January 15, 2025.BOND MARKET REACTS TO FED SIGNALSYields jumped on Friday after Warsh said the central bank would "have work to do" if policymakers were not confident inflation was returning to its 2% target, buoying expectations for a September rate hike.The yield on the 30-year bond rose 5.8 basis points to a session high of 5.266%, its highest level since August 21.Expectations for a rate hike of at least 25 basis points at the Fed's upcoming meeting stand at 63.9%, according ‌to CME FedWatch, up from 57% in the prior session and the 41.4% a week ago.A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year ​Treasury notes, seen as an ​indicator of economic expectations, was at ⁠a positive 41.8 basis points.U.S. Treasury Secretary Scott Bessent said his message to the Group of 20 finance leaders was one of growth, saying that the only way to get out of debt was to grow their way out, while Warsh said ​the world is seeing a global investment surge that is helping to power growth, reversing past savings gluts that kept capital idle due to a shortage of investment opportunities.The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 0.6 basis point to 4.344%.The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.326% after closing at 2.32% on Friday.The 10-year TIPS breakeven rate was last at 2.322%, indicating the market sees inflation averaging about 2.3% a year for the next decade.Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless(You can now subscribe to our ETMarkets WhatsApp channel)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless