Trading Day: Global bond rout accelerates as oil prices surge

The global bond rout accelerated on Tuesday, sending Japanese yields through key levels untouched for more than three decades as investors bet that central banks will need to raise interest rates to contain persistent inflation and loose fiscal policy.

Oil prices added to the pressure. Crude rose 5% amid the ongoing U.S.-Israeli war on Iran, weighing on bonds and equities. Major U.S. stock indexes fell, with the S&P 500 down 0.7%, the Dow Jones down 0.8% and the Nasdaq down 1%.

Bond yields climbed across major markets. Japan’s government bond yields reached 30-year and record highs along the curve. Britain’s 10-year gilt yield reached its highest level since 2008, while the 30-year yield hit its highest since 1998. French and German yields also reached multi-year highs. The U.S. 10-year yield rose to 4.80%, its highest since January 2025.

The dollar broadly strengthened, while the yen fell through 160 per dollar. Gold dropped 3%. In Hong Kong, Shein ended flat in its market debut, while energy shares gained 1.5% in the S&P 500 and consumer discretionary stocks fell 2%. Dell shares dropped 7% during trading before rising 8% after the close on record results.

The selloff reflects more than oil prices and the risk of a supply shock. In the United States, investment, borrowing and growth linked to artificial intelligence may also be contributing. The deeper concern is that the fiscal outlook for the Group of Seven and other countries is becoming untenable. Interest rates exceed growth rates, while debt servicing consumes a growing share of government budgets. Federal Reserve Governor Michael Barr said rates may need to rise and that the Fed would have to act "decisively" if inflation failed to moderate.

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