A global government bond selloff intensified on Tuesday, pushing yields across major economies to their highest levels in years as renewed U.S.-Iran tensions drove oil prices higher and fanned inflation fears. Treasury yield advanced 3 basis points, settling at 4.788% — a level not reached since Jan. 14, 2025. The 30-year Treasury yield ended the session at 5.272%, a gain of more than 2 basis points, and the 2-year note moved up by more than 1 basis point to reach 4.362%.
One basis point equals 0.01%. Bond markets beyond the U.S. also came under pressure. The 10-year Japanese government bond yield crossed 3% for the first time since 1996, according to The New York Times.
The 10-year German Bund yield reached 3.364%, a level last seen in 2011, according to The Wall Street Journal. U.K. gilt yields also climbed sharply, with the 10-year reaching 5.254% — a level not touched since 2008 — and the 30-year hitting its highest point since 1998. The catalyst was a fresh escalation in the Middle East.
Fresh U.S. military strikes against Iran, combined with a tanker attack in the Strait of Hormuz, sent Brent crude climbing past $92 a barrel, a price roughly 30% above where it stood before the war began. Higher energy costs have heightened expectations of persistent inflation, which in turn has increased the probability that the Federal Reserve will raise interest rates. Those expectations were already elevated after Federal Reserve Chairman Kevin Warsh, speaking at the Jackson Hole symposium last Friday, signaled that bringing inflation back to target was his undisputed priority, according to Bloomberg.
U.S. money markets priced a 65% probability of a rate increase at the Fed's Sept. 16 meeting, up from roughly one-third before Warsh's speech. Economists at Barclays and Societe Generale changed their forecasts after the speech to predict rate hikes they had not previously anticipated, according to Bloomberg. "Global bonds are facing a perfect storm of rising inflation fears, driven by higher energy prices, which are in turn raising rate hike expectations," Leon Ferdinand Bost, analyst at Metzler, said in a note, according to the Journal.
"At the same time, fiscal concerns are back at the forefront and together with heavy supply are weighing on the long end." Ulrike Hoffmann-Burchardi, UBS chief investment officer of the Americas and global head of equities, pointed to a broader set of pressures. "Uncertainty over the Federal Reserve's policy outlook, fiscal concerns, and rising AI-related debt issuance have all kept bonds under pressure," she said in a Tuesday note. "Yield volatility is likely to persist in the near term." Mounting government debt levels have added to investor anxiety.
Extract — continue reading at the source.
