Bond Markets Shudder Under Rising Energy Prices

The global bond market has been experiencing significant turmoil in recent weeks, driven by rising energy prices and inflation expectations. The war in the Middle East has had a particularly pronounced impact, pushing up borrowing costs for governments, businesses, and households across various regions.

Japan is at the heart of this story, with its 10-year bond yields surging above 3% for the first time in three decades. This has set off concerns about a potential mass repatriation of Japanese capital from foreign markets back to domestic assets, which could further squeeze global borrowing costs.

In the US, upcoming inflation reports are expected to play a crucial role in shaping the Federal Reserve's interest rate decisions later this month. The ECB is also poised to raise rates by 25 basis points on Thursday, despite policymakers' uncertainty about the future trajectory of inflation.