Yields Edge Lower as Inflation Concerns Persist Amid US-Iran Tensions

Bond markets in the US and Japan experienced a brief respite from their recent woes as yields edged lower on Thursday. However, this reprieve may be short-lived given the overall bleak outlook for debt investors.

The escalating tensions between the US and Iran have kept oil prices above $90 a barrel, fueling inflation concerns that are pushing central banks to tighten monetary policy. The probability of a 25-basis-point rate hike by the Federal Reserve this month has increased to about 67% from 37% odds just last week.

Despite these expectations, Federal Reserve Bank of New York President John Williams tempered them slightly on Wednesday, stating that rising long-term bond yields reflect a solid economy and that he wants more data before making a decision. The market will be closely watching the upcoming ADP labour figures and nonfarm payrolls report on Friday for further insight into the US economy.

The European Central Bank and Bank of Japan are also grappling with inflation concerns, but recent data suggests that Japan's services sector is expanding at its fastest pace in five months. This has helped boost the yen to a three-week high, adding to a surge on Wednesday that raised suspicions of a rate check by Japan's central bank.

In the corporate sector, Broadcom reported strong AI chip sales for the next two years, but its shares still fell over 3% in extended trading.