What Set Off the Rise in Interest Rates? Mainly, the Iran War.

The Iran war hasn’t merely driven up the prices of oil, diesel fuel and gasoline.It also bears major responsibility for the painful increase in interest rates the world has been experiencing since the end of February.Much attention in the United States has been focused on the Federal Reserve, which on Wednesday raised the key short-term interest rate it controls by a quarter of a percentage point to a range of 3.75 to 4 percent.

But when you look at what’s happened to interest rates this year, it’s evident that the Fed is trying to catch up to a surge in bond rates that has been underway for months.The Fed has just signaled that it is likely to raise rates by another quarter-point this year.

But the bond market is saying that if current conditions persist, it expects the Fed’s short-term interest rates to go much higher.Collectively, the thousands of bond traders who set longer-term rates have acted with blinding speed this year.The Iran war began on Saturday, Feb.

28.When the bond market reopened two days later, traders began pushing longer-term rates higher.In hindsight, that weekend marked the start of an unmistakable trend in the global economy and in financial markets.Energy prices, which had adjusted to the supply shock of the war in Ukraine, began to levitate again.

The pace of inflation, which had been ebbing, began to accelerate — and global interest rates began moving upward as perceptions of global risk spiraled.The yield on the benchmark 10-year Treasury note on Thursday hovered close to 5 percent.For 30-year Treasuries, the yield was almost 5.3 percent.

And for two-year Treasury bills — a measure that suggests where the market believes the Fed’s short-term rate will stand in two years — the yield approached 4.7 percent....