Federal Reserve Chairman Kevin Warsh is facing the most severe challenge to the bond market since taking office. A massive sell-off in Treasury bonds has driven yields up rapidly, and market expectations for the inflation outlook and the Fed's policy direction are undergoing a dramatic adjustment. This round of market movements is influenced by geopolitical tensions and is also putting Warsh's communication strategy—reducing verbal pronouncements and relying on economic data to guide the market—to the test. Latest market data shows that the yield on 10-year US Treasury bonds climbed to 4.71%, a new high since January 2025; the yield on 30-year Treasury bonds approached 5.18%, reaching a near 19-year high. Global bond markets are under pressure in tandem, with the yield on 10-year Japanese government bonds rising to around 2.82%. The continued rise in yields directly pushes up US mortgage rates and corporate financing costs, with the US government's annual debt interest payments exceeding one trillion US dollars, broadly impacting various sectors of the economy. Geopolitical conflicts, oil prices, and inflation expectations are the core triggers . This round of yield surges is mainly due to the continued rise in international oil prices caused by the conflict related to Iran, which in turn has triggered market concerns about a rebound in inflation. Rising oil prices have shattered market expectations of a rapid cooling of inflation, prompting investors to reassess the possibility of the Federal Reserve maintaining high interest rates or even restarting rate hikes, overturning the previously widely expected monetary easing path. Before the outbreak of the Iranian conflict, the yield on 10-year US Treasury bonds had fallen below 4%; now, upward pressure on energy prices is having a significant impact on the approximately $30 trillion US Treasury market. Investors are assessing the sustainability of the oil price transmission to inflation while simultaneously repricing the Fed's policy response logic. Some analysts suggest that the strong resilience of the US economy has provided Warsh with policy maneuvering space but also exacerbated market uncertainty. Warsh's policy style has amplified market volatility. After taking office, Warsh proactively reduced forward guidance, insisting on data-driven policy formulation. In the current market environment, this shift in policy thinking has further amplified bond market volatility. Warsh's implementation of a new monetary policy framework means that the market needs to make more independent judgments about market trends, no longer relying on clear guidance signals from the Fed. In the long term, this is conducive to the rational discovery of asset prices, but in the short term, it will push up term premiums and exacerbate yield volatility. Market analysts such as Robin Brooks have also pointed out that after central banks weaken forward guidance, long-term Treasury yields often face upward pressure, and increased uncertainty will raise risk compensation and term premiums. Currently, this effect, coupled with geopolitical risks, has produced a synergistic effect greater than the sum of its parts. Institutional views are diverging, with an overall cautious attitude . The market's pricing of the Fed's subsequent policies has clearly shifted towards conservatism and caution. JPMorgan analysts recently predicted that the Federal Reserve is likely to keep interest rates unchanged throughout 2026; however, oil price and inflation risks may force policymakers to adopt a more hawkish stance. Some argue that Warsh's "zero tolerance for inflation" is becoming a new policy benchmark, but it is also amplifying short-term market volatility. Regarding fixed-income asset allocation, Lombard Audier recommends prioritizing European sovereign bonds over US Treasuries; he is optimistic about the relative investment value of short- to medium-term bonds with maturities of 2 to 5 years, while remaining cautious about long-term bonds. This view reflects a balanced approach by institutions in a high-yield environment: acknowledging the attractiveness of current yields while remaining wary of escalating geopolitical tensions that could push yields further up. Outlook and Risk Warnings Overall, the bond market performance in late July indicates that geopolitical uncertainty remains the core dominant variable. Analysts generally warn that during this period of uncertainty surrounding geopolitical conflicts and a relative scarcity of important economic data, any new developments in oil price movements and the Middle East situation could continue to influence yield trends. Multiple institutions predict that yields may fluctuate within the current high range; however, if the US economy continues to show resilience or energy prices remain high, the risk of further yield increases should not be underestimated. For investors, the current environment necessitates a greater focus on real-time economic data analysis and a move away from over-reliance on forward guidance from central bank policies. Warsh's innovative monetary policy framework, intended to enhance the Fed's policy flexibility, is now facing unprecedented market challenges during the historically volatile summer season. In the coming weeks, the market will closely monitor various signals leading up to the Fed's interest rate meeting and subsequent geopolitical developments.