Bond Market Chaos: 10-Year Treasury Yield Hits Three-Year High

The global bond market is experiencing severe turmoil as investors demand higher yields in response to rising inflation and economic uncertainty. The benchmark 10-year U.S. Treasury yield has hit a three-year high of 4.9708%, closing in on the key 5% level that could disrupt the stock market and slow the economy.

Australian bond yields have reached 15-year highs, while New Zealand swap rates surged 22 basis points and Japanese benchmark government yields lifted 9 bps as traders bet central banks will need to hike interest rates to combat inflation.

The sharp rise in oil prices, with Brent crude back above $108 a barrel, is the main driver of these developments. The Strait of Hormuz remains effectively shut, and the Bab al-Mandab Strait at the southern end of the Red Sea is at risk of falling to Houthi control, which could lead to further logistical issues and higher oil prices.

Asian shares are deep in the red, with Japan's Nikkei and South Korea's KOSPI off over 2%. European bourses may have a calmer open given yields there had already hit multi-decade highs overnight. Wall Street futures were little changed in Asia, awaiting more liquidity.