J.P. Morgan Maps Middle East Scenarios as 10-Year Yield Hits 5.05%

J.P. Morgan Private Bank has outlined three Middle East conflict scenarios as the 10-year Treasury yield reached 5.05% on Sept. 23, keeping energy disruption and inflation risks central to the outlook for U.S. government bonds.

The bank’s 2026 Mid-Year Outlook replay divides the possible paths into prolonged disruption, persistent disruption and resolution within weeks. The scenarios connect the duration of energy-supply problems with oil prices, inflation expectations and financial conditions.

The official daily Treasury observation put the 10-year yield at 5.05% on Sept. 23. Higher yields can increase borrowing costs and tighten financial conditions for governments, companies and households. Rising energy costs could also make it more difficult for the Federal Reserve to ease monetary policy.

Markets were moving between the prolonged- and persistent-disruption scenarios, while also showing a trend toward gradual resolution over the following six to nine months.

In the prolonged-disruption scenario, the Strait of Hormuz remains closed for an extended period. Energy infrastructure also faces further damage in that scenario. The persistent-disruption case assumes supplies remain constrained and oil retains a risk premium, while the resolution scenario sees the conflict ending within weeks and oil markets moving toward normalization.

Wei-Heng Chen, global investment strategist at J.P. Morgan Private Bank, said some of the increase in oil prices reflected normalization, while “a little bit of risk premium” was keeping prices elevated.

The framework leaves Treasury markets tied to developments in energy flows, inflation expectations and diplomacy. The next shift in market pricing will depend on which disruption path gains greater weight and whether the conflict moves toward resolution within the outlined timeframe.