Oil Price Surge Drives Global Bond Selloff to New Heights

The global bond selloff has deepened as Brent crude oil prices rose to over $91 a barrel, driven by renewed fighting between the United States and Iran. This development has increased concerns about higher energy costs and inflation, putting pressure on interest rates.

The U.S. Treasury yields have risen to their highest levels in months, with the 10-year yield reaching 4.73% on August 31 and the 30-year yield at 5.25%. This is due in part to the continued rise in oil prices, which has disrupted shipping through the Strait of Hormuz.

The Federal Reserve's July Monetary Policy Report noted that 10-year Treasury yields had already risen about 35 basis points from the beginning of 2026 and that short-term inflation compensation had increased sharply after the Middle East conflict began.

The U.S. Treasury has announced larger buyback operations to provide liquidity support in longer-dated government bonds, with a maximum size of at least $4 billion per operation. However, this move does not directly address the underlying inflation pressure coming from energy markets.