Global bond yields extended their sell-off after new U.S. strikes on Iranian military targets pushed oil to five-week highs and stoked inflation fears. The 10-year Treasury yield touched 4.814%, its highest since November 2023, while equities fell across Asia and Europe.
The U.S. struck Iranian military targets near the Strait of Hormuz, and Tehran said it targeted U.S. assets across the region, in what Reuters called the most significant exchange of fire in weeks. The strikes pushed oil prices higher, stoking inflation concerns and extending the global bond selloff along with interest rate hike bets.
Oil rises, bond yields follow
Brent crude futures rose 0.1% to $94.87 a barrel as fears of further disruption to energy supplies mounted. The jump added upward pressure on government borrowing costs already rising on fiscal concerns, according to UBS Global Wealth Management strategist Kiran Ganesh.
The 10-year U.S. Treasury yield was 1 basis point higher at 4.81%, with an intraday peak of 4.814%, its highest level since November 2023. The 30-year Treasury yield rose 2 basis points to 5.286%, while the 2-year yield held near flat at 4.4%. The 10-year Japanese government bond yield held above 3% for a second straight session after touching a three-decade high earlier in the week.
Rate-hike bets firm up
Traders increasingly expect interest rate hikes this month in the U.S. and beyond as inflation concerns deepen. The escalation compounds pressure already building after hawkish comments from Federal Reserve Chair Kevin Warsh, which pushed investors to raise bets on another U.S. rate increase ahead of the Fed's September 16 meeting.
Fed funds futures now imply a 68% chance of a 25-basis-point rate increase this month, up from 37% a week ago, according to CME Group's FedWatch tool. ADP private payrolls data is due Wednesday, with the nonfarm payrolls report following Friday, giving investors fresh signals on whether the economy remains strong enough to justify another hike.
Stocks retreat, dollar firms
Rising yields tend to support the US dollar by boosting its safe-haven appeal while reducing demand for riskier assets. The U.S. dollar index rose 0.05% to 99.734, near its highest level since August 17.
Equity markets moved lower in response. MSCI's gauge of global stocks fell 0.2%, hovering near a one-month low, while the pan-European STOXX 600 slipped 0.3% after sharper declines in Asia. South Korea's KOSPI dropped almost 4%, and the Nikkei 225 fell 2.9%, following an overnight sell-off on Wall Street.
Sources: CNBC, Investing.com
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