Global bond rout deepens as inflation fears trigger rate-hike bets

SINGAPORE — Government bond yields surged across major economies on Monday as rising oil prices linked to the ongoing Middle East conflict fueled fears of higher inflation and renewed expectations of interest rate hikes from global central banks.

Benchmark 10-year U.S. Treasury yields climbed to 4.631%, their highest level since February 2025, after rising more than 20 basis points last week. Bond yields move inversely to prices.

The two-year U.S. Treasury yield, which is highly sensitive to interest rate expectations, reached a 14-month high of 4.102%, while the 30-year Treasury yield rose to a one-year peak of 5.159%.

The rise in yields boosted the U.S. dollar and weighed on global stock markets, which had recently rallied on optimism surrounding artificial intelligence-driven growth.

The selloff in bonds followed another jump in oil prices, with Brent crude futures climbing to $111 per barrel. Concerns over energy supply disruptions intensified after reports that diplomatic efforts to end the Iran conflict had stalled following a drone strike at a nuclear power plant in the United Arab Emirates.

More than two months into the Middle East war, investors are increasingly worried about the economic impact of persistently high energy prices and mounting inflationary pressures.

Charu Chanana, chief investment strategist at Saxo, said investors are once again embracing the “higher for longer” interest rate narrative, even if additional rate hikes are still not considered the most likely outcome.

Japanese government bonds also came under heavy pressure after reports that Japan may issue additional debt to fund a supplementary budget aimed at cushioning the economic effects of the war.

Yields on Japan’s 30-year government bond rose more than 10 basis points to a record high of 4.200%, while the 10-year yield reached its highest level since October 1996 at 2.800%.

DBS senior rates strategist Eugene Leow said the prospect of additional fiscal spending in Japan added to already fragile market sentiment.

He noted that investors across the region are reassessing bond markets as inflation concerns continue to intensify.

Markets are now pricing in more than a 50% chance that the U.S. Federal Reserve could raise interest rates again by December, according to the CME FedWatch Tool.

The European Central Bank is also expected to consider a rate hike as early as next month, while the Bank of England is projected to raise rates about twice this year.

In Europe, Germany’s bund futures and French government bond futures both declined sharply on Monday.

The latest bond market rout followed last week’s release of stronger-than-expected inflation data from several major economies, including the United States, China, Germany, and Japan.

Analysts said the inflation data reinforced market concerns that the Middle East conflict could keep global energy prices elevated and complicate efforts by central banks to bring inflation under control.

Investor hopes for progress during last week’s summit between U.S. President Donald Trump and Chinese President Xi Jinping also faded after the meeting produced little indication of coordinated efforts to ease tensions involving Iran and the Strait of Hormuz.

Barclays analysts warned that a prolonged oil supply shock, combined with resilient global demand and rising inflation, could lead to higher interest rates worldwide.

In the United Kingdom, government bond yields also surged last week amid growing political uncertainty. Pressure has mounted on Prime Minister Keir Starmer following heavy losses suffered by the Labour Party in local elections. -Reporting by Rae Wee; additional reporting by Ankur Banerjee; Editing by Sam Holmes/Reuters