The bond market has a message more inflation could be coming.

From Marketplace, I'm Sabri Beneshore and for David Brancaccio.

Bond yields are the payoff people get when they invest in bonds.

These go up, these go down, and one of the things that drives that is how hungry investors are for bonds. When the world gets scary, they're

usually very hungry because bonds are safe, safer than the stock market. Investors are like,

I don't care if I don't make a lot of money. I just want my money to be safe. With the Iran war,

though, the opposite is happening. Bond yields are going up. Investors are not as hungry. Why not? Short answer, inflation. We called

up Stephen Brown, Deputy Chief North America economist at Capital Economics to find out more.

I think the key thing here is that investors are getting a bit concerned about inflation risks again.

So the nature of this shock is obviously that it's pushed up oil prices. The disruption

to the Strait of Hormuz risks are a whole lot of disruption to the global oil markets.

We've seen oil prices surge since the end of last week. And that's likely to feed through to

higher price inflation, you know, both in the US and across the world. So on the one hand,

investors might well want to keep their money safe in bonds, because

the world is scary. But at the same time, this particular scariness also threatens higher

inflation. And if inflation's going to be higher, that eats into your bond return. And so you want

a higher yield to compensate for that.

So typically when we're talking about kind of a scary shock of some sort, it often means people

are worried about the outlook for the U.S. economy. And in that scenario, they think, well,

the Fed might end up cutting interest rates here, and that will help

pull down those bond yields. Whereas the current context is quite a bit different because investors

see this big spike in oil prices. I think, well, the key thing here really is that that's going

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