Oil Price Surge Sparks Global Bond Yields to New Highs

Global bond yields surged to new highs on Friday as soaring oil prices sparked inflation fears, prompting investors to bet on more policy tightening from central banks. Oil prices jumped 6% overnight, with Brent crude futures hitting a four-month high of $109.97 a barrel.

The conflict in Yemen has escalated, threatening Saudi oil exports and maritime traffic through the Bab el-Mandeb. Analysts at RBC Capital Markets predict that Brent could hit $121.99 a barrel by the fourth quarter, citing the risk of a protracted war.

Comments from President Donald Trump that the war could last beyond the November midterm elections added to market concerns. As a result, bond yields spiked globally, with the benchmark 10-year Treasury yield jumping overnight to close in on the critical 5% level.

Australia's three-year government bond yields surged 17 basis points to a 15-year high of 5.037%, while Japan's 10-year government bond yields rose 5.5 basis points to 2.965%. Analysts at JPMorgan expect eight of the nine major central banks to hike rates between now and year-end, including the Federal Reserve.