The U.S. military increases troops in the Middle East twice in one week! U.S. and European stocks and bonds crash simultaneously, and gold and silver begin another plunge.

Ask AI · What’s the internal connection between a sudden shift in Federal Reserve rate-hike odds and fighting in the Middle East?

A report that the U.S. military is increasing its troop presence in the Middle East has triggered panic in the markets. Traders are now estimating that the Federal Reserve has a 50% chance of raising rates before October. Global bond markets saw indiscriminate selloffs, major U.S. and European stock indexes all fell sharply, and “Triple Witching Day” further intensified market volatility.

On Friday, the Wall Street Journal reported that the Pentagon is moving to deploy three more warships and several thousand Marine Corps personnel to the Middle East.

U.S. officials said that about 2,200 to 2,500 Marine Corps personnel from the “Boxer” amphibious ready group out of California and the 11th Marine Corps Expeditionary Unit are heading to U.S. Central Command. That command is responsible for managing all U.S. military forces in the Middle East.

This is the second major deployment of Marines by the United States within the past week. Previously, the Pentagon had sent the USS Tripoli amphibious assault ship based in Japan and the 31st Marine Corps Expeditionary Unit to the region. Just a day earlier, Trump said he had no plans to send U.S. ground troops to Iran.

After the report was published, traders estimated the odds of a Federal Reserve rate hike being in place by the end of October at 50%, and also expected the Federal Reserve is very likely to raise rates in December, which sharply contrasts with the market’s expectations of two 25-basis-point rate cuts during the year before the outbreak of the Iran war on 28 February. This week, as the Iran war pushed energy prices sharply higher, the Federal Reserve and a host of other major central banks released cautious signals.

A selloff wave broke out in the $3.1 trillion U.S. Treasury market, with U.S. Treasury yields rising by at least 10 basis points across the curve—led by the 2-year Treasury yield, which is most sensitive to monetary policy. The 5-year Treasury yield first exceeded 4% since July last year. The benchmark 10-year Treasury yield rose by more than 10 basis points to 4.37%, reaching the highest level since August last year.

As the world’s deepest and largest government bond market, the sharp volatility in U.S. Treasuries has also triggered spillover effects across global bond markets. The yield on 10-year U.K. gilts rose by 16 basis points to 5%, the first time since 2008. The yield on 10-year German government bonds rose to its highest level since 2011.

Stocks were hit just as hard. U.S. stock index futures all opened lower, with the S&P 500 down more than 1%. European stocks declined as well: Germany’s DAX fell 1.34%, France’s CAC 40 fell 1.0%, Europe’s STOXX 50 fell 1.06%, and Italy’s FTSE MIB fell 1.%.

Notably, tonight coincides with the March quarterly derivatives expiration date—the so-called “Triple Witching Day.” Options linked to nominal value of as much as $5.7 trillion tied to U.S. single stocks, indexes, and exchange-traded funds (ETFs) will expire, marking the largest March delivery volume since Citigroup began recording data in 1996.

On the lift from rate-hike expectations, the U.S. dollar index’s intraday gain widened to 0.50%, last at 99.69. U.S.-dollar-denominated precious metals have returned to a downtrend. International spot gold fell to 4,550 U.S. dollars per ounce, down more than 2% on the day. International spot silver briefly fell below 69 U.S. dollars per ounce, down more than 5% intraday. Spot palladium was down more than 2% intraday.

Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said: “As the Iran conflict continues to escalate and drag on, the Treasury market seems to be worrying that inflation pressure could intensify further. The market is no longer pricing in rate-cut expectations for 2026. It has started to price in the possibility of rate hikes instead, and that is pushing yields much higher.” Previously, Goldberg had said that the inflation outlook was somewhat under control, but the recent escalation of fighting in the Middle East has completely changed that assessment.

In addition, the energy-supply worries triggered by the Middle East conflict are the key factor driving up inflation expectations—given that the Strait of Hormuz is the corridor for 20% of the world’s seaborne oil trade. According to market reports, in the past 24 hours, no tankers carrying crude oil have transited through the Strait of Hormuz.

On Friday, global crude oil prices returned to an upward move. WTI crude broke above 97 U.S. dollars per barrel and was up more than 2% on the day. Brent crude is close to 110 U.S. dollars per barrel.

The Strait of Hormuz has already been blocked by Iran, which could cause wild swings in oil prices in the short term and reignite inflation pressure—this is also the key reason the Treasury market is worried. Even though most market participants believe the likelihood of a long-term blockade is low, the continued fighting keeps investors highly alert to the prospect of an inflation rebound.

Flapper said: “After performing clearly poorly during the Middle East conflict, market participants tend to sell rather than buy gold, and they are waiting for confirmation of reasons to support their bearish stance.”

Meanwhile, supported by holiday buying and a sharp pullback in prices, India’s gold discount narrowed from last week’s nearly ten-year high; while China’s gold premium fell due to weaker demand for physical metal.

Peter Grant, vice president and senior metals strategist at Zaner Metals, said: “War does provide some safe-haven support, but it’s only a secondary factor. The outlook for the Federal Reserve to keep interest rates unchanged through 2027 is a negative for gold.”

He added, “If prices move back above $4,800, it will relieve some downside pressure and suggest a possible move toward $5,000. But I think it won’t break out of the current range in the near term, and once it does break out, I think the final trajectory will be upward.”

To ease tensions in the oil market, U.S. President Trump said he has told Israel not to hit Iran’s gas infrastructure again. Meanwhile, U.S. Treasury Secretary Bessent said the United States may soon lift sanctions on Iranian oil that is stuck on tankers. On Thursday, Israel launched an attack on Iran’s South Pars gas field, and then Iran attacked Qatar’s Ras Laffan natural gas facilities, causing severe damage to the world’s largest gas-to-liquids (GTL) plant—the Pearl GTL project.