Oil Price Surge Sparks Global Bond Market Upheaval
A sharp increase in oil prices and escalating Middle East hostilities have sent global bond yields surging, with Australia's Reserve Bank of Australia (RBA) interest rate hike looming as a major concern for investors.
The surge in Brent crude to US$110 a barrel has driven traders' bets on an RBA rate hike later this month, pushing local bond yields to multi-year highs. The S&P/ASX 200 responded by falling 1% at Friday's open, extending its weekly decline past 3%.
Australian bond yields reflected the heightened pressure, with the three-year bond yield surging to 5.04% and the 10-year yield hitting 5.37%. Bell Potter's director of institutional sales and trading, Richard Coppleson, warned that an RBA hike will hurt the consumer at a time when the Australian economy is looking weak.
Citi anticipates two more RBA rate rises this year, citing Australia's 'two-speed economy', where a housing market correction occurs alongside an investment boom. The broker predicts a 10% national house price fall from their peak by early next year, impacting the ASX's heavyweight banking sector.