Government bonds sold off across major markets on Tuesday as oil prices climbed back above $91 a barrel, reviving inflation worries just as several central banks weigh new rate hikes. Japan's 10-year yield hit the 3% level for the first time since 1996, while US and UK yields also pushed higher.
Global government bonds sold off again on Tuesday, pushing yields to fresh highs as renewed fighting in the Middle East sent oil prices climbing. Brent crude rose 0.7% to $91.13 a barrel, reversing Monday's 2.7% drop, while US benchmark WTI gained 0.77% to $86.42 after falling 2.8% a day earlier.
Oil surge follows renewed Middle East fighting
The US and Iran exchanged fire for the first time in a month on Monday, with missiles and drones striking Iranian rocket launchers on an island in the strait of Hormuz before Iran targeted US military bases in Jordan and the United Arab Emirates in response. Donald Trump threatened further action, telling Fox News he would hit them hard.
Japan's benchmark yield breaks a generational threshold
Japan's 10-year government bond yield hit the 3% level for the first time since 1996, a milestone Masahiko Loo, senior fixed income strategist at State Street Investment Management, described as more of a normalisation story than a crisis, driven by a higher inflation regime and a higher neutral rate. Prashant Newnaha, senior rates strategist at TD Securities, said the shift marks a regime change, since Japanese government bonds had long anchored global fixed income.
Treasuries and gilts follow, with more rate hikes priced in
The US 10-year Treasury yield rose 2.6 basis points to 4.78%, its highest since early 2025. The equivalent UK gilt yield edged up to 5.14%. Markets are pricing in a rate hike in New Zealand on Wednesday, and traders expect the European Central Bank to raise its key rates by 0.25 percentage points at its meeting on 10 September. Traders also see better-than-even odds of rate hikes in the US and Japan this month.
Andrew Lilley, chief rates strategist at Barrenjoey, tied much of the move to shifting Fed expectations. According to Investing.com: "I think really most of this selloff has been a re-assessment of Fed policy." Stock futures pointed to a lower open in Europe, with Wall Street also expected to fall after modest declines on Monday.
Sources: The Guardian, Investing.com
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