Global bond yields surged Tuesday as renewed tension between the U.S. and Iran reinforced inflation expectations, and with that increased the prospect of interest-rate hikes in the coming months.
The 10-year U.S. Treasury yield rose to 4.786%, the highest since January 2025, according to LSEG data. The 10-year Japanese government bond yield crossed 3% to hit a 30-year high. The 10-year Bund yield reached 3.339%, unseen since 2011.
In the U.K. the 10-year gilt yield rose to 5.234%, the highest since 2008, while the 30-year yield rose to levels unseen since 1998.
"[The] bond rout deepens," said Christoph Rieger, head of rates and credit research at Commerzbank in a note.
Federal Reserve Chairman Kevin Warsh's comments at the Jackson Hole symposium on Friday on inflation risks and the necessity for inflation to come back down to 2% continued to push yields higher.
"The rise in global yields continues unabatedly," KBC Bank analysts said. "Ongoing elevated oil/energy prices, markets anticipating tighter monetary policy and higher (fiscal) risk premia all are possible explanations for this trend move," they said.
Middle East tensions keep the price of Brent crude oil above $90 per barrel, with Brent last trading up 1.3% at $91.33.
Elevated oil prices "[keep] the inflation channel alive even without a full escalation through [the Strait of] Hormuz," Evelyne Gomez-Liechti, multi-asset strategist at Mizuho said in a note. This makes it harder to argue that interest rates should stay on hold, she said.
Solid U.S. jobs data on Friday and, particularly, U.S. inflation data next week could add to rate-hike expectations. U.S. money markets priced a 65% probability of a rate increase on Sept. 16, having priced around a one-third possibility prior to Warsh's speech on Friday, according to LSEG.
The upward pressure on bond yields bodes ill for the U.S. Treasury's intentions to lower borrowing costs in the wake of the recent surge of the 30-year yield to a 19-year high.
The Treasury recently announced increased buybacks of long-end securities.