Gulf Tensions Fuel Oil Price Surge, Global Bond Yields Rise
Oil prices surged nearly 5% yesterday to levels above $95/barrel due to escalating tensions between the US and Iran in the Gulf, causing a disruption in the Strait of Hormuz. This has added fuel to an already anxious inflation picture, driving up global bond yields.
The benchmark 10-year Treasury yield clocked a high of 4.8%, its highest level since late 2023, while German bund yields and French OAT futures are approaching multi-year highs. Australia's 10-year bond yield hit 5.26%, effectively wiping out the impact of US Treasury Secretary Scott Bessent's 'buyback' intervention announcement last month.
Equities took a hit across the board, with US benchmarks ending lower and Asian equity markets experiencing similar losses. The New Zealand dollar slipped against its G10 peers after a dovish RBNZ hike, while Australian Q2 GDP numbers beat expectations but had little impact on the currency.
The eurozone inflation figures showed YY inflation at 3.3%, up from 2.9% in July, driven by a 14.3% increase in energy prices. Markets are fully pricing in a 25 bp rate hike next week and another rate hike down the road by year-end.