A jump in oil prices toward $100 a barrel deepened a global bond sell-off on Thursday, driving major governments' borrowing costs to their highest levels of the year. Traders who before the Iran conflict expected rate cuts now brace for hikes as an energy-driven inflation shock resets central bank expectations.
A surge in oil prices toward $100 a barrel deepened a global bond sell-off on Thursday, sending big nations' borrowing costs back to their highest levels of the year. The move revived fears of an inflation shock and forced investors to rethink where central bank rates are heading.
Yields climb to yearly highs
The benchmark 10-year US Treasury yield rose above 4.7% for the first time since January 2025, overtaking its previous wartime peak reached in May. It sets a reference borrowing rate for global debt markets.
Germany's 10-year yield climbed as much as 0.03 percentage points to 3.21%, its highest since 2011. The French 10-year, meanwhile, touched 4% for the first time since 2009.
A Houthi blockade lifts crude
Iran-backed Houthi militants announced a blockade of Saudi Arabia this week, sending crude to a seven-week high. The group also attacked two Saudi oil tankers in the Bab el-Mandeb strait, stoking fears that supply disruptions could spread beyond the Strait of Hormuz.
Brent crude has led the climb, rising from just above $70 a barrel in early July to as high as $99.44 on Thursday. West Texas Intermediate rose 5.2% to $91.30 a barrel as the rally entered a fifth day.
Rate-cut bets flip to hikes
The prospect of lasting energy inflation has flipped expectations toward interest rate hikes. Traders now expect the Federal Reserve to deliver two quarter-point rate rises by January, a sharp turnaround from bets on cuts before the Iran conflict.
Euro-area markets price at least two further quarter-point increases by next April. The European Central Bank held rates steady on Thursday but warned the full inflationary impact of the energy shock had yet to play out.
Short-term price pressures are already building, with the two-year US inflation swap creeping from 2.27% to 2.34% over the past week. Barclays' Jon Hill described an inflation problem the Fed may not be able to fix: "Even though interest rate hike expectations are rising, inflation expectations are not dropping."
Sources: Financial Times, Investing.com
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