Bond Vigilantes Flex Their Muscles Amid Iran Conflict
The bond market is facing new pressure as the conflict between the US and Iran escalates, pushing yields on US and Japanese government bonds to multi-year highs. The yield on the US 10-year Treasury bond reached an intraday high of 4.8122% on Tuesday, its highest level in almost three years.
The resumption of hostilities in the Middle East is adding fuel to inflation concerns, making fixed-income assets less appealing to investors. Rising yields in Japan could also keep more Japanese money at home, reducing a key source of demand for overseas bonds.
Bank of Japan officials have vowed to continue raising interest rates, with Governor Kazuo Ueda stating that the central bank will maintain its hawkish stance. This move has added pressure on bond markets, which are already grappling with fiscal concerns and rising oil prices.
The escalation of tensions between the US and Iran is having a ripple effect across global markets. Equities have taken a hit as financial conditions tighten, with MSCI's broadest index of Asia-Pacific shares outside Japan tumbling 1.7% on Wednesday.