IRGC Maintains its Stranglehold on US Treasury Yields

Key Points

• The IRGC warns shipping that alternative routes not mandated by Tehran were “unacceptable and completely dangerous.”
• A cargo ship on an alternative route near the coast of Oman is struck by a projectile believed to be a drone.
• US aircraft retaliated with an attack on Iran’s coastal radar and missile sites.
• 10-year Treasury yields are falling in response to low oil prices.
• However, Core PCE figures for May warn that inflation is spreading across the broader economy.
• Gold rallied above primary support at $4,000 per ounce.

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Iran’s Revolutionary Guards are tightening control over shipping passing through the Strait of Hormuz, forcing ships to follow their advised route or face the consequences.

From the Financial Times:

At least four tankers have been turned back by Iran while attempting to exit the Strait of Hormuz on Thursday, as Tehran appeared to challenge an evacuation route issued by the International Maritime Organization.

The IMO on Tuesday said that after “discussions with all parties” it had established a safe evacuation corridor hugging the Omani coast for ships and seafarers that had been stuck in the Gulf for more than 100 days.

But the Blue Star I, SG Pegasus, Azumasan and Omega Trader either made a U-turn or changed course from the IMO’s route on Thursday, according to ship tracking data. Analysts said the diversions were likely to have been made after instructions from Iran’s Islamic Revolutionary Guard Corps, which said routes not mandated by Tehran were “unacceptable and completely dangerous.”

That setback comes one day after 62 vessels managed to traverse the strait, according to data from Windward, the best single-day showing since hostilities commenced on Feb. 28.

Later, an IRGC drone attack was reported on a cargo ship traveling close to the coast of Oman.

LONDON/MAMANA/DUBAI, June 25 (Reuters) – The U.N. International Maritime Organization paused its operation to escort ships through the Strait of Hormuz on Thursday after a vessel reported an attack, reigniting concerns about ‌whether a preliminary deal to end the Iran war will hold.

The cargo ship said it was hit close to Oman by a projectile, British navy agency UKMTO said, hours after Tehran warned vessels against taking routes that it had not approved.

Two U.S. officials told Reuters that Iran had fired on the ship, while Iran’s Persian Gulf Strait Authority, which Tehran established to manage requests for ships to travel through the strait, said vessels outside routes it has set will ​not be guaranteed safe passage.

“Consequences arising from passage through unauthorized routes shall be the responsibility of the owner, operator, and vessel commander,” the Iranian authority said.

The US military retaliated with airstrikes on Friday:

WASHINGTON/DUBAI, June 26 (Reuters) – The U.S. military attacked Iran on Friday in response to an Iranian drone strike on a ‌cargo ship in the Strait of Hormuz, with each country accusing the other of violating terms of a ceasefire agreed on last week.

U.S. Central Command said aircraft struck missile and drone storage locations and coastal radar sites, and a U.S. official reported the operation had concluded. Iran said a projectile struck the area around a pier in Sirik in southern Iran, and that Iranian naval forces responded by striking U.S. military targets in the region.

Brent Crude futures (Aug’26) fell 2%, however, on news that Israel and Lebanon had signed an interim ceasefire agreement while terms of a broader agreement are negotiated.

JERUSALEM/BEIRUT/WASHINGTON, June 26 (Reuters) – Israel and Lebanon signed a framework agreement in Washington on Friday following several days of talks to secure an end to fighting between Israel and Iran-backed Hezbollah militants, though ‌both sides framed the deal as an initial step.

Lebanese Ambassador Nada Moawad and her Israeli counterpart Yechiel Leiter signed the trilateral document with the U.S. at the State Department in Washington, providing few details.

Israeli Prime Minister Benjamin Netanyahu said the agreement allows Israeli forces to continue to occupy southern Lebanon if Hezbollah does not disarm.

PCE Inflation

Headline PCE inflation jumped to 4.1% for the 12 months to May 2026, while the Core PCE index, excluding Food and Energy, rose to 3.4%. The rising Core index indicates that inflation is no longer affecting just energy-related items, but is spreading into the broader economy.

The monthly increase for May was even higher at annualized rates of 5.4% and 3.8% for Headline and Core PCE, respectively.

PCE for Energy remained elevated at 4.03% for May, an annualized rate of 48%, but we expect it to decline in June.

However, higher fuel prices are now baked into supply chain costs and will likely persist for the next 3 to 6 months before inflationary pressures ease. PCE for Services, excluding Energy and Housing, increased at an annualized rate of 6.3% in May, indicating that inflationary pressures are spreading across the broader economy.

The spread of inflation across the broader economy increases pressure on the Fed to raise interest rates to slow the economy and halt the spread.

Treasury & Financial Markets

10-year Treasury yields are falling sharply in response to lower oil prices, with expectations of lower inflation running ahead of the supply chain lag.

2-year Treasury yields also eased to 4.12% but remain well above the Fed funds target range of 3.5%-3.75%, with at least one 25-basis-point rate hike expected this year.

Bitcoin¹ continues testing primary support at 60,000. A breach would signal another decline, signaling a hard shift in financial markets toward risk-off.

Stocks

The S&P 500 lost ground for the fourth week, while declining Trend index peaks indicate secondary selling pressure, warning of a correction to test 7000.

The Magnificent 7 mega-cap stocks are leading the sell-off, with the Roundhill Magnificent 7 ETF (MAGS) headed for a test of primary support at 55. One of the key signals of the final stage of a bull market is when former leading stocks no longer participate in the advance.

Dollar & Gold

The US Dollar Index broke through resistance as the oil price fell, but is now retracing to test its new support level. Respect would signal an advance with a target of 104.

Gold recovered above primary support at $4,000 per ounce, buoyed by Dollar weakness and declining Treasury yields, which reduce the opportunity cost of holding Gold and Silver.

Silver has also retraced to test its former support level at $60 per ounce.

The decline in the broad DJ-UBS Commodity Index since March 2026 coincides with the steep rise in 10-year US Treasury yields. Rising long-term interest rates increase the opportunity cost of holding non-yielding commodities and precious metals.

Conclusion

The uptrend in 10-year Treasury yields has reversed amid falling oil prices and will likely strengthen demand for commodities and precious metals, provided crude oil prices remain low.

Iran’s Revolutionary Guards are keeping tensions in the Strait of Hormuz simmering. Not enough to spark a major conflict with the US, but sufficient to keep shipping in the Strait of Hormuz under their control. The US continues to deplete its Strategic Petroleum Reserve to alleviate the supply shortage and keep prices low, but this makes it more vulnerable to further threats to restrict the flow of oil through the Strait.

President Trump would be happy for negotiations with Iran to be drawn out, provided that the Strait of Hormuz remains open to shipping in the interim. But the Iranians are aware that their leverage expires with the November midterm elections, and we can expect ongoing threats to close the Strait. The path of crude oil prices is therefore difficult to predict.

We expect a long-term secular uptrend in Gold and Commodities relative to the Dollar. This is based on CBO projections that federal debt (held by the public) relative to GDP will exceed its post-WWII high of 106% before 2030 and expand to 175% of GDP by 2056.

Aside from default, the only solution to the debt spiral is to suppress interest rates and allow inflation to run hot, so that GDP expands faster than federal debt, as in the 1950s to 1970s.

However, the budget deficit is running at close to 6.0% of GDP, and will likely expand further as the US invests in critical supply chains and ramps up defense spending, so even suppressing interest rates is unlikely to be sufficient.

 

Acknowledgments

• CoinDesk: Bitcoin
• Federal Reserve of St Louis: FRED Data
• CNBC: Brent Crude ICE May’26 Futures
• CNBC: 2-Year Treasury Yield
• CBO: The Budget and Economic Outlook, 2026 to 2036
• Reuters: US strikes Iran in response to attack on cargo ship in Strait of Hormuz
• Reuters: Israel, Lebanon sign initial agreement after US-mediated talks
• Marcus Nunes: Three Markets, One Question
• Grant’s Daily: Red Light, Green Light

Notes

1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.