European stocks and US treasury yields fall after Israel attacks Iran

European stocks dropped sharply when markets opened on Friday as investors switched to safe-haven assets following Israel’s strikes on Iran. At the same time, U.S. Treasury yields eased amid the rising tensions.

The European STOXX 600 index fell 1.45% to 545.10 points by 08:56 GMT. This marks the fifth straight session of losses for the benchmark, pointing to a weekly decline. 

Heightened geopolitical risk in the Middle East added to existing market concerns over the U.S. President Donald Trump’s tariff policies. 

The travel and leisure sector dropped 3.1%, with notable declines among major carriers: British Airways owner IAG fell 4.8%, Germany’s Lufthansa lost 4.6%, and EasyJet shares slid 4.3%. Carnival, the London-listed cruise operator, saw its stock decline by 5%. Crude oil prices surged more than 7%, putting extra pressure on airline stocks. 

By contrast, energy companies benefited from the oil rally. Shares of Shell and BP each rose 1.9%. Defense stocks also outperformed, with France’s Dassault Aviation up 1.3% and Italy’s Leonardo climbing 2.3%.

US Treasury yields fell alongside Euro stocks

In bond markets, U.S. Treasury yields retreated. The yield on the benchmark 10-year Treasury dropped two basis points to 4.351% by 08:30 GMT. Yields on two- and five-year notes also fell by around two basis points, and longer-dated issues saw similar declines. 

The slide came after Israel launched airstrikes on Iranian soil, targeting nuclear facilities and ballistic missile factories it said were part of efforts to develop an atomic weapon. These explosions were heard in Iran’s capital, Tehran at 3:00 local time. In response, Iran sent 100 drones toward Israeli territory.

Iranian state media reported the deaths of Mohammad Hossein Bagheri, head of the Iranian Armed Forces, and Hossein Salami, commander of the Islamic Revolutionary Guard Corps. Two leading nuclear scientists were also said to have been killed in the raids.

Furthermore, the Iranian state TV announced that residential areas of Tehran were also targeted in the strikes. As of yet, Iranian authorities have informed the IAEA that there have been no radiation leaks at Natanz site, which was confirmed to be hit.

Supreme Leader Ali Khamenei vowed that Iran would respond to the attacks. Meanwhile, Israel declared a state of emergency and warned civilians to prepare for possible missile and drone strikes “in the immediate future.”

Market watchers are now looking for further developments in the region and any additional policy moves from Washington that could influence global trade and risk sentiment.