Bond Markets Reel Under Oil Surge as Inflation Fears Resurface

Global bond markets are facing significant pressure as energy prices surge to new heights, rekindling concerns about inflation. This week saw UK gilt yields climb above 5% for their longest period in nearly two decades, while Germany's 10-year yield reached its highest since 2011. Japan's 40-year yield jumped 10 basis points on Friday alone, and the US 30-year yield came close to its highest levels since 2007.

The average yield on the Bloomberg Global Treasury Index, which tracks government bonds of investment-grade countries, surged to 3.68% on Thursday, surpassing a peak from three years ago and reaching its highest level since the global financial crisis in 2008. This comes as investors were previously betting that the worst of this year's rout was over.

Central banks are facing credibility tests as they attempt to convince markets that they have inflation under control. The US Federal Reserve, Bank of Japan, and Bank of England will make key decisions next week that could move the market further. A further selloff in bond markets would add to concerns about global debt levels becoming unsustainable and push up corporate borrowing costs.