Global Bond Yields Spike as Oil Hits Four-Month High
Brent crude reached $109.97 per barrel, driving global bond yields to new peaks and triggering a sell-off in equities across Asia and the US.
Brent crude futures jumped to US$109.97 per barrel on Friday. This marked a four-month high. Global bond yields responded by spiking to record levels. Investors priced in the risk of sustained inflation. Central banks are expected to tighten policy further.
Oil prices rose six percent overnight. The surge stems from restricted flows through the Strait of Hormuz. Iran-aligned Houthis seized control of Yemen's Mocha port. This threatens Saudi oil exports in the Red Sea. RBC Capital Markets projects Brent could reach US$121.99 by the fourth quarter.
US Treasury Yields Near Five Percent
The benchmark 10-year US Treasury yield closed near 5.0 percent. The 30-year yield hit its highest level since 2007. Two-year yields surged 12 basis points. Markets now assign a 68 percent probability to a Federal Reserve rate hike this month. These moves reflect heightened inflation fears.
JPMorgan analysts expect eight of nine developed market central banks to hike rates by year-end. This group includes the Fed, Bank of Japan, and four European central banks. Australia and New Zealand are also included. Canada is expected to remain on hold. Tightening in other regions is anticipated to be shallow.
Asian Markets Slide on Higher Rates
Australia’s three-year government bond yield rose 17 basis points. It reached a 15-year high of 5.037 percent. Japan’s 10-year yield increased 5.5 basis points to 2.965 percent. Higher discount rates reduced corporate valuations. Asian equity markets fell sharply in response.
Australia’s resources-heavy index slid 1 percent. Japan’s Nikkei index tumbled 2.8 percent. South Korea’s KOSPI index dived 2.7 percent. Nasdaq futures fell 0.2 percent. S&P 500 futures showed little change. The US dollar gained 0.4 percent against major peers.
Inflation Data Will Determine Fed Path
US consumer price data for August is due later in the day. This release may determine the case for a Fed rate hike next week. Forecasts center on a 0.2 percent monthly rise in core CPI. Producer price data showed some stickiness overnight. Risks lean toward higher inflation figures.
Gold held at US$4,317 per ounce. It dropped nearly two percent overnight. The metal failed to capture significant safe-haven buying. GN markets/rates (en-US) reported that commodity pressure remains a key driver for policy decisions.
