Global Bond Yields Hit Crisis Levels as Iran War Disrupts Oil Supply
By Aboki Forex —
Long-term government bond yields have climbed to levels not seen since the 2008 global financial crisis. Strategists warn that the selloff is far from over.
Bloomberg’s gauge of average yield-to-maturity on sovereign debt due in ten years or longer has risen to its highest since July 2008. The surge is driven by rising global inflation expectations, fuelled by higher oil prices after the Iran war choked off the Strait of Hormuz.
“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.”
Global bond yields have jumped in recent weeks as higher energy costs feed into everything from plastic bottles to gasoline for tractors. Worries over government spending in Japan, the UK and the US, plus an artificial intelligence boom supporting the US economy, have pushed investors to demand more compensation for holding longer-term debt.
US 30-year Treasury yields have risen nearly 60 basis points since the Iran war began, hitting 5.20% – the highest since July 2007. In the UK, similar tenor debt has climbed to its highest since 1998, overtaking Australia as the highest-yielding developed market.
“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.”
Hsiao added that heavy bond issuance, term premium repricing, and algorithmic selling are also driving the decline. Bloomberg strategists say 5.25% is the next near-term target for US 30-year Treasury yields.