Oil Price Spike Triggers Global Bond Yields to Multi-Year Highs
Global bond yields reached multi-year highs on Friday as a surge in oil prices intensified inflation concerns and prompted investors to bet on further interest rate hikes by central banks.
The Brent crude price rose to $109.97 per barrel, its highest level in four months, following a 6% overnight jump that put it on track for a weekly gain of nearly 13%. Oil flows remained constrained through the Strait of Hormuz amid attacks between the US and Iran, while Iran-aligned Houthis took control of Yemen's port of Mocha, raising concerns over Saudi oil exports.
US Treasury yields climbed sharply as investors reassessed the outlook for monetary policy. The benchmark 10-year Treasury yield rose to 4.9708%, its highest level in three years and just below the closely watched 5% threshold. The 30-year Treasury yield reached 5.3803%, its highest level in 19 years.
Higher long-term borrowing costs will likely put pressure on US mortgage rates and the housing market, while increasing financing costs for the US government's roughly $40 trillion debt. Markets were pricing in a 70% probability of a Federal Reserve rate hike this month as policymakers face renewed inflation risks from higher energy prices.
The selloff in Treasuries spread across Asia, with Australia's three-year government bond yield surging to a 15-year high of 5.047%, while Japan's 10-year government bond yield rose to 2.97%. Analysts at JPMorgan now expect eight of the nine developed-market central banks to raise interest rates by the end of the year.