President Donald Trump's resolve on Iran is being tested by a force largely beyond his control: the bond market.
As yields rose rapidly over the last week, a White House official said there was significant anxiety among staff over petrol prices and where the bond market is headed, with fuel prices the biggest source of anxiety right now.
Higher yields mean elevated borrowing costs for businesses and consumers, while rising oil prices push up inflation expectations.
That mixture can cause headaches for the administration as it prepares for midterm elections in November.
"The markets are showing him pain, and he has to figure out how to unwind that — and it's not that easy," said Greg Faranello, head of US rates strategy at AmeriVet Securities in New York.
"We're already at levels that ultimately will spill over into mortgage rates and it's going to spill over into the housing market."
Trump said on Saturday that Washington and Iran have been making progress on a peace deal in the three-month-old war, although on Sunday he emphasised there was no rush for a deal, dampening hopes of an imminent breakthrough.
"I do think that if the administration is worried about higher yields, then trying to de-escalate the situation with calmer words is something they can do," said Shawn Snyder, economic strategist at Potomac Fund Management in Bethesda, Maryland.
Over recent days and weeks, US Treasury investors have focused on the elusiveness of a deal and long-term consequences of the war, lifting yields well above 4.5 per cent on the benchmark 10-year note.
Meanwhile, Federal Reserve officials looking to squash inflation have been discussing the possibility of raising interest rates instead of cutting them as Trump has urged.
And some Republicans in Congress are growing concerned at some of Trump's calls for spending ahead of the midterm elections which will decide whether they maintain thin control of the House and Senate.
Rising Treasury yields feed directly into borrowing costs across the economy, including mortgages, credit cards and business loans, and can cause financial stability issues.
US Treasury Secretary Scott Bessent and the White House both suggested that elevated yields would prove temporary.
On Wednesday, yields on US Treasuries retraced some of their sharp run-up, after Trump said talks with Iran were in their final stage.
Earlier in the week, the 10-year yield touched 4.69 per cent, the highest since January 2025.
It has surged more than 50 basis points since the February 28 start of the US-Israeli war with Iran, and was last at 4.56 per cent.
Reaction to the latest progress on peace is yet to be seen in the market.
A sustained rise in borrowing costs could cool housing demand, weigh on consumer spending and, in a worst-case scenario, tip the economy toward recession.
That risk could prove especially significant heading into the US midterm elections.
"Affordability is a buzzword in Washington and for good reason because affordability really resonates with a large number of households and interest rates drive a lot of it," said John Kerschner, global head of securitised products at Janus Henderson in Denver.
Still, if a peace deal is ultimately brokered, the effects could be transient.
This week, Bessent said elevated yields, especially at the long end of the curve, were being driven by the Iran war energy shock that will prove temporary.
The White House also said any disruption was likely to be short-lived.
"President Trump has always been clear about temporary market disruptions as a result of Operation Epic Fury," White House spokesman Kush Desai said in a statement.
He said the administration was still focused on Trump's "long-term agenda of accelerating economic growth, cutting red tape, and slashing fraud in government spending to restore America's fiscal health".
The bond market has long been a powerful political force that can shape policy in Washington, which must maintain investor confidence to finance government debt.
When investors lose faith, rising borrowing costs can pressure leaders.
Former President Bill Clinton's adviser James Carville told the Wall Street Journal in the early 1990s that he wanted to be reincarnated as the bond market, because "you can intimidate everybody".
