Global bond yields reached significant new highs on Tuesday, driven by a confluence of factors including rising energy prices due to renewed conflict in the Middle East and increased expectations for interest rate hikes. The 10-year U.S. Treasury yield, a key benchmark, rose to 4.79%, its highest since early 2025. Similarly, Japan's 10-year benchmark yield hit 3% for the first time since 1996, and Britain's 10-year yield reached above 5.24%, its highest since 2008. Germany's equivalent yield rose to a 15-year high of 3.36%.
The surge in bond yields was largely attributed to fears of sticky inflation, stoked by higher oil prices, with Brent crude rising 2% to $92.20 a barrel. Traders also ramped up their bets on central bank actions after Federal Reserve Chair Kevin Warsh's speech last week, with the market now pricing in a 65% chance of a Fed rate hike in September, up from 40% a week prior. Money markets are also fully pricing in another rate hike from the European Central Bank this month. Andrew Lilley, chief rates strategist at Barrenjoey, commented that much of the bond sell-off is a "re-assessment of Fed policy," anticipating at least a three-rate hike cycle.
Rising borrowing costs exerted downward pressure on stock markets globally. U.S. stock futures for the S&P 500 fell 0.6%, and Europe's STOXX 600 index dropped 0.7%. Hong Kong's Hang Seng also declined by 1%. Aneeka Gupta, a senior strategist at WisdomTree, noted that higher yields pose a significant strain on tech companies, particularly those borrowing heavily for AI investments, which are a major growth driver for equity markets. The U.S. dollar, acting as a safe-haven asset, strengthened, with the euro slipping 0.2% to $1.16 and the dollar rising 0.1% against the yen to 159.9. Geopolitical tensions, including renewed fighting between the U.S. and Iran and ongoing conflict between Russia and Ukraine, further contributed to market anxieties, pushing wheat prices near three-year highs.
