The war is raising the price of money. That’s a problem for the global economy

Yellow lights are flashing in the most important market on the planet: The US bond market.

The turmoil is being driven by a confluence of separate but related forces. The US war with Iran is heating up again, driving up US defense spending and the cost of oil, gasoline, diesel and jet fuel.

That energy spike is reinforcing inflation worries in a bond market already nervous about America's $40 trillion mountain of debt . The yield on the benchmark 10-year Treasury, which is a measure of how much the US government pays to borrow more money, climbed on Wednesday to the highest level in nearly three years.

The bond market stress will make it more expensive for consumers to get a mortgage, for businesses to borrow and for Washington to pay the bills.

The risk is that this situation morphs into a doom loop, where the more the war intensifies, the more it will spook the bond market and slow the economy and stocks.

"It feels like there is no end to the inflation problem, the war or the deficit in the near term," said Hardika Singh, economic strategist at Fundstrat, an investment research firm.

The stock market gets most of the headlines, but the real power lies in the bond market. And bond market investors around the world have not been shy about flexing their muscles this summer.

In Germany, the 10-year yield recently hit levels unseen since 2011. The UK's 30-year yield hit its highest since 1998. In Japan, which is suddenly dealing with a burst of inflation after decades of no inflation, the 10-year government bond crossed a 3% yield for the first time since 1996.

Higher bond yields are stealing thunder from stocks by providing what is traditionally thought of as a risk-free alternative. Since the US government has always paid its debts, the closer the US 10-year gets to 5%, the harder it is to justify buying tech stocks with historically high valuations that might come down.

When President Donald Trump shocked the world in late February by striking Iran, US officials stressed the conflict would be short, measured in weeks, not months.

But now the war has dragged out for more than six months, disrupting the flow of energy out of the most critical supply region in the world. That's forced investors to reprice energy, inflation and bonds.

Workarounds – including sneaking oil tankers out of the Persian Gulf and China slashing its oil imports – have limited the damage. But the damage still exists.

Last month was the most expensive August for gas prices in US history, according to AAA. Diesel, a crucial fuel for the economy, has spiked 51% since the war started.