Global bond selloff deepens as Middle East tensions spike oil prices
Long-dated government bond yields hit multi-decade highs as Middle East tensions and rising oil prices stoke inflation fears, pressuring global equities.
Government borrowing costs across major economies climbed to levels not seen in years on Tuesday, as escalating Middle East tensions and firmer oil prices fueled fresh inflation concerns among investors.
The yield on the 30-year US Treasury bond touched an intraday high of 5.321% — its strongest level since June 2007 — as soft economic data led more traders to bet the Federal Reserve will hold off on further rate hikes. The benchmark 10-year Treasury yield edged up 0.4 basis point to 4.7259%, while Japan's 10-year government bond yield rose 2.5 basis points to 2.945%, a three-decade peak.
Brent crude extended its advance for a third day, trading near $91 per barrel, after a senior Iranian official said Tehran would adopt a "fully offensive" military posture, citing stalled efforts to negotiate a permanent end to the war with the US. Washington has ruled out extending a temporary ceasefire that expired on Monday.
Adding to diplomatic strains, US President Donald Trump threatened to bomb Oman if it interfered with negotiations over the future of the Strait of Hormuz, making the Gulf state the latest American ally to draw his ire this week.
The fixed-income selloff weighed on equities across Asia. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7%, with South Korea's KOSPI dropping 1.5% after a holiday. Japan's Nikkei 225 slumped 2.1%, while S&P 500 e-mini futures were down 0.3%. In Europe, pan-region futures were 0.4% lower, German DAX futures fell 0.5%, and FTSE futures were flat.
Investors now await UK unemployment and earnings data, as well as the ZEW economic sentiment surveys for the euro zone and Germany, for further direction.