Financial markets entered a cautious phase on Monday as escalating Middle East tensions and renewed US-Iran negotiations fueled uncertainty across asset classes. Eurozone bond yields climbed sharply, with Germany’s two-year yield surging 6 basis points to 2.59% and the 10-year benchmark rising 5 basis points to 2.98%, reflecting market repricing of European Central Bank rate expectations. Money markets now price the ECB deposit rate at 2.60% by December, up from the current 2%, and assign an 80% probability of an initial hike later this month.
The move came against a backdrop of heightened geopolitical risk. Iran’s threat to completely block the Strait of Hormuz and the Bab El-Mandeb Strait pushed oil prices nearly 5% higher, with WTI crude rebounding strongly. Safe-haven flows surged, lifting the US Dollar Index above 99.00 and driving gold back above $4,500, while the Swiss franc also strengthened. US President Donald Trump’s comments that a deal to reopen the strait could be reached within a week provided some relief, but market sentiment remained fragile as Iran’s negotiating team reportedly halted indirect talks with Washington in protest over attacks on Lebanon.
For cryptocurrency markets, this risk-off environment presents a headwind. Higher bond yields and a rising dollar typically reduce appetite for speculative assets like Bitcoin and altcoins. The crypto sector, often correlated with tech stocks and broader risk sentiment, faces selling pressure as investors rotate into traditional safe havens. With inflation data from the Eurozone and US job openings due later this week, volatility is expected to persist, potentially keeping crypto prices under pressure in the short term.
