Bond Selloff Deepens as Oil Prices Reach New Highs

The global bond market is experiencing a significant selloff, driven by rising oil prices and inflation fears. Japan's 10-year benchmark yield reached 3% for the first time since 1996, while Britain's 10-year yield hit its highest since 2008 at 5.24%. The US 10-year Treasury yield rose to 4.79%, its highest since early 2025.

Rising oil prices and renewed conflict in the Middle East are contributing to the bond market volatility, with Brent crude reaching $92.20 and Europe's benchmark natural gas price climbing towards its highest since early 2023. The increase in borrowing costs is also putting pressure on stock markets worldwide, with US stock futures falling by 0.6%.

According to Andrew Lilley, chief rates strategist at Barrenjoey, the bond sell-off is a re-assessment of Fed policy, and he predicts that the Federal Reserve will hike interest rates in September, starting a three-rate hike cycle. Higher yields could put pressure on tech companies that are borrowing heavily in bond markets to fund AI investments.