Energy Surge Fuels Global Bond Selloff as Central Banks Prepare to Hike
Renewed energy price spikes from the Iran conflict have intensified a global bond selloff, with 10-year Treasury yields near 5% and central banks poised for rate hikes.
A fresh escalation in the Iran conflict has driven energy prices sharply higher, deepening a worldwide selloff in government bonds. Investors are now bracing for a series of interest rate increases from major central banks this month, with the pressure concentrated on economically sensitive 10-year benchmark yields.
US 10-year Treasury yields climbed to their highest level since 2023 on Wednesday, touching 4.8% as global crude and natural gas prices surged. The yield is now approaching the 5% threshold, a level widely seen as a critical test for equity markets, particularly for portfolio managers juggling mixed assets.
Rate hikes are now considered highly likely at the Federal Reserve, European Central Bank, and Bank of Japan this month. Fed Governor Michael Barr indicated on Tuesday that a September increase may be necessary, while Fed Chair Kevin Warsh had already laid out the case for a hike last week.
New Zealand's central bank became the first to act, delivering its second consecutive rate rise on Wednesday. However, dovish signals about the future path of policy weighed on the kiwi dollar.
The renewed energy price shock is also adding to fiscal and political strains in several economies as winter approaches. Britain and France face critical budget announcements, Germany holds three important state elections in September, and the US midterm elections are just two months away.
Market attention will now shift to US labor data due this week, though inflation remains the primary concern for the Fed. In corporate news, strong earnings from Dell and Palo Alto Networks underscored the ongoing AI boom, with Broadcom reporting later today.