Germany's 10-year Bund yield jumped to its highest level since 2011 on Tuesday as an escalating Middle East crisis and surging oil prices drove a global sovereign bond selloff. Yields across the UK, Italy, the US and Japan climbed in tandem as traders priced in interest rates staying restrictive for longer.
German and European yields break out
Germany's benchmark 10-year Bund yield jumped to 3.22%, breaking past recent resistance to touch its highest level since May 2011. The rate-sensitive two-year Schatz yield followed suit, surging toward its highest level since late July at 2.822%.
British gilts and Italy's debt joined the broader sovereign selloff. The UK two-year gilt yield jumped to 4.558%, touching its highest level since May 2026. Italy's 10-year note yield jumped to 4.06%, its highest since late July. The moves represent a broader, worldwide dumping of sovereign paper as intermediate and long-end borrowing costs break out to multi-decade highs.
A global bond rout gathers pace
European desks are taking direct cues from a global bond market rout that has gathered momentum across major trading hubs. In the prior session, the U.S. 30-year Treasury yield surged past 5.30%, reaching its highest level since 2007 as long-duration investors demanded a heftier term premium to hold paper against persistent fiscal deficits and raw material inflation. On Tuesday, Japan's 10-year government bond yield jumped 2.5 basis points to 2.945%, climbing to a three-decade high not seen since September 1996, driven by rising hawkish expectations for Bank of Japan rate hikes.
The cross-asset repricing underscores how swiftly global fixed-income desks have abandoned early-summer disinflation narratives, replacing them with a structural fear of cost-push inflation pressures driven by energy supply paralysis.
Middle East crisis drives the selloff
The primary catalyst for the widespread fixed-income exit is the worsening crisis in the Persian Gulf. Iran has shifted to a fully offensive military posture following the collapse of ceasefire talks, and Brent crude has broken past $91 a barrel, leading bond traders to discount the likelihood that central bankers can deliver rapid policy cuts.
European inflation expectations are surging as the Strait of Hormuz transit freeze threatens to embed higher energy and freight costs across continental supply chains. Rather than pricing in economic slowdowns, bond markets are treating the current environment as a stagflationary shock that will force the European Central Bank and the Federal Reserve to keep interest rates restrictive for a prolonged period. Fixed-income desks are staying defensive, waiting for clear signals that energy markets have stabilized before stepping back into long-duration sovereign debt.
Source: Investing.com
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