Global Bond Selloff Deepens as Iran War Drives Yields to Crisis Levels
By Aboki Forex —
Longer-maturity government bonds are selling off hard. Yields have climbed to levels not seen since the 2008 global financial crisis. Strategists warn the losses are far from over.
The surge in global inflation expectations is the main driver. Rising oil prices from the war in Iran have choked off the Strait of Hormuz. Bloomberg’s gauge of average yield-to-maturity on sovereign debt due in ten years or longer now sits at its highest since July 2008.
“We’re seeing a broader repricing of duration driven by fiscal realities, persistent inflation risks and political uncertainty,” said Patrick Coffey, head of a research group at Barclays Plc in London. “It’s hard to point to a near-term catalyst outside of the reopening of the Strait of Hormuz that could fully reverse the current selloff.”
Energy costs are feeding into everything from plastic bottles to tractor fuel for harvests. Add in worries over government spending in Japan, the UK and the US. The artificial intelligence boom is also supporting growth in the world’s biggest economy. Investors now demand greater compensation to hold longer-maturity debt.
Yields on US 30-year Treasuries have jumped almost 60 basis points since the Iran war began. They now sit at 5.20%, the highest level since July 2007. In the UK, similar tenor debt has climbed to levels last seen in 1998. A political crisis has hit the gilt market, pushing UK yields past Australia to become the highest among developed markets.
“I do think chances are high for 10-year US yields to break through 4.75% next,” said Monica Hsiao, chief investment officer at Triada Capital Ltd. in Hong Kong. “The main issue is longer term oil prices and the war not seeing a way to off-ramp into peace.”
Beyond Iran headlines and heavy bond issuance, technicals are also driving declines. Algorithms are on overdrive with systematic selling, she added.
What Bloomberg Strategists Say: “With conviction low in bonds, 5.25% is the next near-term target for US 30-year Treasury yields.”