(May 15): The global bond selloff intensified as Brent crude’s climb past US$107 a barrel compounded a week of mounting pressure from signs of rising inflation around the world.
The yield on two-year Treasuries climbed to 4.06%, a level not seen since March 2025, while 10-year yields rose to near 4.54%, the highest in about a year. Japan’s 30-year yield increased to 4% for the first time since its debut in 1999, and the 20-year rate climbed to its highest since 1996.
The bond rout reflects a fundamental repricing of global interest-rate expectations, as crude’s advance stokes inflation fears already heightened by back-to-back US inflation reports this week. Along with wagers on Federal Reserve rate hikes, policy tightening bets are also gaining traction in Japan, where producer prices jumped by the most since 2014.
“The move higher in global bond yields is a little unsettling,” said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore. “An extended and persistently high oil price could be the nail in the coffin for bonds.”
The selloff has cascaded across other regions, with Australian and New Zealand yields resuming their advance. European bond futures retreated as political instability in the UK unnerved gilt investors. The implied yield on a gauge tracking global government debt held at its highest level since November 2023.
The retreat has been amplified by hawkish rhetoric from Fed officials.
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Fed governor Michael Barr said on Thursday inflation is the overwhelming risk facing the economy. The comments followed data this week that showed producer costs accelerating at the fastest pace since 2022. Traders are pricing in an almost two-thirds chance the Fed will hike interest rates in December, according to data compiled by Bloomberg.
The market moves suggest investors are aggressively unwinding positions entered during previous selloffs as two-year yields cross 4% and Fed bets are finessed, according to Stephen Spratt, a rates strategist at Societe Generale SA in Hong Kong. “There had been appetite for carry positions and fading around the top-end of ranges, but these have largely given way,” he said. “That’s causing a flush out.”
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Investors are also retreating from bonds as concerns mount about fiscal pressures in major developed markets. In Japan, the rise in yields also reflects renewed concerns over the nation’s fiscal policy after reports that the government is considering a supplementary budget.
Gilts slumped following Manchester Mayor Andy Burnham’s announcement that he will seek a return to Parliament. The move is seen as a direct challenge to Prime Minister Keir Starmer’s leadership, rattling investors who fear a shift towards more expansive fiscal policies.
In the US, Trump Administration has begun issuing more than US$35.5 billion to importers who successfully filed for tariff refunds after the US Supreme Court found the president’s signature economic policy unlawful. That is adding to pressure on the nation’s finances.
“Concern about embedded inflation is spreading,” said Kenneth Crompton, head of rates strategy at National Australia Bank in Sydney.
Japan and the UK have inflationary fiscal concerns behind them, but “they are a growing factor in the US too,” he said. Crompton noted that tariff impacts and war costs could finally force President Donald Trump’s administration to move marginal issuance into bonds and away from bills.
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