Global bond yields reached multi-year highs on Tuesday, September 1st, following a renewed escalation of military tensions between the U.S. and Iran, which propelled oil prices above $90 a barrel. The U.S. 10-year Treasury yield surged to 4.78%, marking its highest level since early 2025, while Germany's 10-year Bund yield hit 3.313%, a level not seen since 2011. Japan's 10-year benchmark yield also touched 3% for the first time in a generation. These movements reflect investor concerns about persistent inflation and the implications for central bank policy.
The surge in yields was primarily attributed to two factors: geopolitical instability and hawkish signals from the U.S. Federal Reserve. Sunday's U.S. strike on Iranian rocket launchers and subsequent defense against missiles launched at Jordan heightened fears of an all-out conflict, pushing oil prices up by around 3% and rekindling inflation worries. Concurrently, Federal Reserve Chair Kevin Warsh's speech at Jackson Hole last Friday adopted a hawkish tone, emphasizing concerns about inflation remaining above target and leaving the door open for interest rate hikes. Markets are now pricing in a 64% probability of a U.S. rate increase at the September 16th meeting, up from 35% before Warsh's speech.
Analysts note that the "macro mix is turning more challenging for duration and risk assets." Rising oil prices and U.S.-Iran tensions are stoking inflation worries, which negatively impacts bonds. Simultaneously, rising sovereign borrowing is leading investors to demand higher premiums. Wee Khoon Chong, APAC Macro Strategist at BNY, commented that "Hawkish monetary policy, renewed geopolitical and inflation risks, and rising fiscal concerns are converging to maintain the upward pressure on global term premiums and long-end yields." The broad selloff in global bonds is putting pressure on stock markets worldwide, with U.S. and European equity futures dipping.
