Global bonds face deepening selling pressure as Middle East risks continue

Global bond markets are coming under deepening selling pressure as mounting geopolitical tensions in the Middle East drive up oil prices and fuel inflation concerns.

Despite easing US inflation, the resurgence of geopolitical risks in the Middle East sparked supply concerns in the Strait of Hormuz, while the renewed rise in energy prices pushed bond yields higher.

A high-ranking Iranian official reportedly said Tehran could shift from defense to offense if the US-Iran talks prove fruitless. US President Donald Trump said he did not intend to extend the 60-day framework agreement set to expire.

Trump threatened to bomb Oman if the country obstructed US operations in the Strait of Hormuz, according to a Fox News report.

These developments fueled concerns that economies will be more vulnerable to supply shocks and persistent inflationary pressures, while concerns that some governments may be unable to decrease their spending also drove selling pressure in the bond market.

The US 10-year Treasury yield reached its highest level since January last year at 4.75%, while the 30-year yield hit its highest level since 2007 at 5.34%.

The US 10-year and 30-year yields stabilized at 4.69% and 5.27%, respectively.

The sharp rise in US Treasury yields poses a risk for Trump and Treasury Secretary Scott Bessent ahead of the midterms, while high public financing costs are passed on to corporate and consumer loans.

Meanwhile, growing concerns over high debt and inflationary pressures led to sharp rises in long-term European bond yields.

Germany’s 10-year bond yield hit its highest level since 2011 at 3.27%.

France’s 30-year bond yield reached 4.91% ahead of next year’s presidential election, hitting its highest level since 2008.

At the same time, Japan’s 10-year bond yield hit its highest level since 1996 at 2.95%, later stabilizing at 2.93%.

The Bank of Japan’s (BoJ) slow pace in raising interest rates to curb inflationary pressures contributed to the selling pressure, while concerns over the country’s fiscal situation also affected its bond market.

Japan’s economy grew 0.3% on a quarterly basis and 1.1% year-on-year in the second quarter of the year, below estimates, following quarter-on-quarter growth of 0.5% and annual growth of 1.8% in the first quarter.

Japan’s inflation rose from 1.4% in April to 1.5% in May and 1.7% in June and is expected to reach 1.9% in July.

Tim Waterer, chief market analyst at KCM Trade Global, told Anadolu that the rise in long-term bond yields is due to persistent inflation concerns and fiscal pressures.

Waterer said the US 30-year bond yield reaching its highest level in nearly two decades showed concerns over high oil prices, volatility in long-term inflation expectations and high government bond issuance, while investors are asking for a higher term premium to hold long-term bonds.

He said Japan’s 10-year yield hitting its highest level in 30 years was primarily due to growing expectations that the BoJ will hike rates as early as September and the impact of high global bond yields.

“Fiscal concerns and the inflationary impact of a still-relatively weak yen are adding to the pressure,” he said.

“In short, markets are pricing a world where inflation risks have not fully subsided and where major central banks, particularly the BoJ, may still need to tighten further,” he added.

Ahmad Assiri, market strategist at Pepperstone, told Anadolu that bond yields are rising due to the mounting cost of public debt, noting that the US budget deficit of $2 trillion is causing concerns, while the three largest lenders to the US Treasury — Japan, the UK and China — are reducing their long-term bond holdings.

“Additionally, oil is pushing higher above the $90 mark extending to elevated inflation expectations. All these factors together have contributed to the most elevated yield in two decades,” he added.