US Bond Yields Surge Amid Oil Price Hike and Inflation Fears

The recent spike in oil prices due to tensions between the US and Iran has led to a rise in US government bond yields. The 10-year yield has jumped to around 4.76%, its highest level since January 2025, while the 30-year yield is little changed. This increase in yields reflects investor concerns about inflation and the high cost of servicing the US$40-trillion pile of debt.

Lorne Gavsie, head of macro and foreign exchange at CI Global Asset Management, warned that if investors' fiscal concerns are not addressed directly, yields could continue to rise. He noted that the bond market is unlikely to take the government's word for it when it comes to reducing the debt burden.

The higher oil prices also boost inflation risks, which could lead to aggressive tightening by the Federal Reserve. Scotiabank strategist Hugo Ste-Marie said that while equities can withstand a couple of rate hikes, a significant tightening would come with its own risks.