Global bond yields spike as elevated crude oil prices raise inflation fears

Worldwide bond yields are witnessing sharp spikes on Tuesday as inflation fears continued to haunt investors. The US 10Y yields hit 4.78% mark, last seen in October 2023, while the 2Y bond yields are back to December 2025 levels of 4.3%, indicating heightened expectations of imminent rate hike in the coming policy meeting. The long-term 30Y yields have rose above 5.3% mark, suggesting, higher-for-longer interest rates in the US economy.

Why are bond yields rising on Tuesday?

The closest trigger to sharp spike in bond yields can be largely attributed to sharp spike in the crude oil prices as renewed hostilities between the US and Iran raised the concerns of supply disruption in the region. Meanwhile, the US officials also claimed that the US military has launched fresh attacks on Iran, in the Strait of Hormuz. Iranian state media also reported fresh explosions in Bandar Abbas area.

The renewed attacks on Iran and particulary in the Strait of Hormuz, lifted the crude oil prices by 3.4%. Brent crude oil futures surged beyond $94 per barrel for the first time 10 days. Similarly, the WTI crude oil prices touched $90 per barrel mark on Tuesday.

Elevated crude oil prices and renewed tensions in the Middle East has raised the concerns for sticky inflation. Consequently raising the probabilites of rate hike in the coming policy meeting. The CME Fedwatch tool shows more than 60% probability of rate hike in the September policy meeting.

Global bond yields spike

The renewed hostilities and fears of supply disruption in the region, has renewed inflation fears across the globe. The Japanes 10Y bond yields have hit 3% mark for the first time in the history, adding worries to countries economic growth prospects.

Moreover, it also raised fresh concerns of Yen carry trade unwinding across the globe. Meanwhile the US stock markets extended the fall on Tuesday as the Dow Jones fell over 440 points or 0.8%, followed by the S&P 500 at -0.6%, while the NASDAQ 100 holding the losses at 1% since open.

Not just US & Japan, bond yields in UK, India, Eurozone have posted markable spike in today’s trading session, hinting at stagflationary scenario for the global economy, if the crude oil prices remain elevated for longer.