Bond Selloff Fuels Oil Price Surge to US$91
A global bond selloff has put pressure on stocks as oil prices rose above US$91 a barrel, driven by renewed fighting in the Middle East. The 10-year US Treasury yield reached a near 20-month high of 4.78 per cent, while Japan's 10-year benchmark is closing in on three per cent.
Higher oil prices and rising US-Iran tensions are stoking inflation concerns, which are negative for bonds. Federal Reserve Chair Kevin Warsh has reset expectations for the monetary policy outlook, signalling policymakers could move if price pressures fail to show signs of easing.
The macro mix is turning more challenging for duration and risk assets, according to Wee Khoon Chong, APAC Macro Strategist at BNY. Hawkish monetary policy, renewed geopolitical and inflation risks, and rising fiscal concerns are converging to maintain the upward pressure on global term premiums and long-end yields.
Markets are pricing in an interest rate hike in New Zealand on Wednesday and an increase in Europe next week. Rate hikes this month in the US and Japan are also at better-than-even odds.