Extended Sell-off in Global Bonds
The global bond sell-off deepened dramatically last Friday and continued into this week as the geopolitical deadlock over the Iran war drove oil prices higher. At Friday’s close, benchmark Brent Crude had risen 1.8% to $111.16, while U.S. West Texas Intermediate futures climbed just over 2.00% to settle at $107.56.
The 30-year US Treasury (U.S. Government Bond), which is a benchmark for long-term global interest rates, saw yields rise to 5.16%, the highest since October 2023. The 2-year treasury touched a 14-month high of 4.102%, and is considered the most sensitive benchmark to inflation and rate expectations.
In Germany, the 10-year German Bund saw yields rise by two basis points, hitting 3.1827%. In the United Kingdom, after a turbulent week last week, the 10-year gilt, a benchmark for UK government debt, saw yields ease slightly by circa 1 basis point, but remains elevated at 5.169%. In Japan, the 10-year JGB (Japanese Government Bond) raced to 2.739%, last seen this high in 1996, an increase of 13 basis points, whilst the 30-year bond surges 20 basis points—the highest since its debut in 1999.
Financial markets are betting that central banks will have to employ monetary tightening and raise interest rates, as the continuing closure of the Strait of Hormuz keeps energy prices elevated, negatively impacting inflation. President Donald Trump has warned Iran that the “clock is ticking” for them to strike a deal, and yesterday announced on his media outlet ,Truth Social, “They (Iran) had better move fast or there won’t be anything of them left”.
However, experts warn that previous deals offered by Iran and the US have been rejected by both sides, and further note that there appears little prospect for a deal between the US and Iran. With manufacturing supply chains signalling an ever increase in prices, plus a lack of energy flows from the Persian Gulf, it seems inevitable that interest rates will rise across major financial centres as central banks battle to keep inflation under control.
Many experts agree that between rising inflation, high sovereign debt, increasing interest rates, plus the recent gains in government bond yields in developed countries, the global economy is in danger of negative impacts in the next three to six months. Even if the war were to end tomorrow, oil prices will remain elevated due to supply chain bottlenecks, a lack of investment in the energy sector, plus the need to restructure global energy security.
Financial and political commentators are laying the blame for the present global fiscal problems at the door of President Donald Trump. The US/Iran/Israel war began on 28th February 2026 with the White House trumpeting that Iran’s ballistic missile programme could endanger US allies including Europe and the American mainland. 48 days later, the Strait of Hormuz remains shut, the war is at a standstill, and energy and food prices will begin to rocket should there be no conclusion either way to this conflict.
As a result, experts suggest that bond prices will continue to soar, and financial markets feel that if the hard left of the UK Labour Party replaces UK Prime Minister Sir Keir Starmer, spending will be out of control and gilts may reach levels not seen before. In the US, financial markets are saying the Federal Reserve needs to get behind the inflation curve and remove the bias towards easing monetary policy. If not, the word is investors will demand a higher inflation risk premium.
