Bond Yields Surge as Middle East Conflict Fuels Inflation Fears
The global market is witnessing a significant shift in investor sentiment, driving up bond yields across major economies. The Euro zone and US government bond yields are on course to post their biggest monthly increase since March, as investors reassess the long-term economic impact of the conflict in the Middle East.
Renewed concerns about inflation have prompted traders to push back expectations for interest rate cuts, driving up bond yields. Market pricing now indicates that traders expect the European Central Bank's deposit rate to stand at 2.75% in early 2027, returning to levels last seen during the peak of tensions linked to the Iran conflict.
In the US, investors have sharply reduced expectations for Federal Reserve rate cuts, with markets now expecting two rate hikes by June next year. The two-year Treasury yield was steady at 4.23% and is set to finish July around 9 basis points higher.