Global Bond Markets Plummet as Oil Prices Surge to New Heights

Bond markets around the world slumped on Tuesday as U.S. Treasury yields rose to their highest level since 2007, driven by higher oil prices and investor uncertainty ahead of key central bank meetings in the U.S. and Japan.

The 10-year U.S. Treasury yield extended its gains, reaching above 5.0210% for the first time since mid-2007 after touching 5% overnight. Japan's benchmark 10-year government bond yield climbed back above 3% to a fresh 30-year high of 3.025%.

The renewed supply concerns in the Middle East drove oil prices higher, with U.S. crude rising 1.82% to $103.24 a barrel and Brent gaining 1.6% at $107.37. This has heightened inflation concerns, prompting markets to price in rate hikes by both the Federal Reserve and Bank of Japan.

The Federal Open Market Committee is set to begin its two-day meeting later in the day, with markets pricing in a 90% chance of a rate hike that would mark the Fed's first increase since mid-2023. Analysts at Morgan Stanley expect a 25 basis-point hike on Wednesday, and again in December.