Bond Market Rout: Inflation Fears Send Treasury Yields Soaring

The bond market is experiencing its latest rout, with governments worldwide being put on notice that they'll have to pay more for borrowing. The benchmark 10-year U.S. Treasury yield hit a three-year high of 4.9708% in Asia, closing in on the key 5% level that could disrupt the stock market and slow the economy.

Australian bond yields reached 15-year highs, New Zealand swap rates surged 22 basis points, and even Japan's benchmark government yield lifted 9 bps as traders bet central banks will hike interest rates to keep inflation under control.

The main culprit behind this is Brent crude's surge back above $108 a barrel, now up more than 50% from its July lows. The Strait of Hormuz remains shut, and the narrow Bab al-Mandab Strait at the southern end of the Red Sea is at risk of falling to Houthi control after they seized the Red Sea port city of Mokha.

This would force more shipments to reroute through the Suez Canal and around Africa, creating further logistical issues and adding weeks to Asian voyages. Wall Street futures were little changed in Asia, awaiting the arrival of more liquidity.