Global bond rout deepens as inflation fears mount
- The two-year yield touched a 14-month top of 4.1020%, while the 30-year US Treasury yield rose to a one-year high of 5.1590%
SINGAPORE: Bonds from Tokyo to New York extended losses on Monday as rising energy prices from the ongoing Middle East war fanned inflation fears and stoked investor wagers on rate hikes from global central banks.
Benchmark 10-year US Treasury yields, which move inversely to prices, jumped to their highest since February 2025 in early Asia trade at 4.6310%, having climbed more than 20 basis points last week.
The two-year yield touched a 14-month top of 4.1020%, while the 30-year US Treasury yield rose to a one-year high of 5.1590%.
The moves came on the back of a climb in oil prices on Monday, as efforts to end the Iran war appeared to have stalled following a drone strike at a nuclear power plant in the United Arab Emirates.
“Fresh drone attacks on the UAE’s Barakah nuclear plant and Saudi territory, coupled with Trump’s ‘clock is ticking’ ultimatum and a planned Situation Room meeting on Tuesday, have sharply elevated the risk of renewed full-scale hostilities,” said analysts at OCBC.
More than two months into the Middle East war, investors are beginning to fret about the economic fallout from the conflict as inflationary pressures mount and what that would mean for the global interest rate outlook.
Japan’s long-term yield set to test 30-year high of 3% as inflation risks build
“The ‘higher for longer’ story is coming back, even if actual rate hikes are still not the base case,” said Charu Chanana, Saxo’s chief investment strategist.
Markets are now pricing in a more than 50% chance the Federal Reserve would raise rates by December, according to the CME FedWatch tool, while the European Central Bank is seen hiking as early as next month and the Bank of England about twice this year .
The move in US Treasury yields spilled over to the broader market, with Germany’s bund futures and French OAT futures falling about 0.4% each in early trading.
In Japan, yields on the 30-year Japanese government bond (JGB) jumped 17 bps to their highest on record at 4.170% while the 10-year yield touched its highest since October 1996 at 2.800%.
The selloff in JGBs accelerated after Reuters reported that Tokyo will likely issue fresh debt as part of funding for a planned extra budget to cushion the economic blow from the Middle East war.