Bond selloff deepens and stocks drop as oil prices stoke inflation fears

Global bond yields spiked on Tuesday, fueling a widespread selloff in government debt driven by inflation concerns. The benchmark U.S. 10-year Treasury note's yield climbed 3.4 basis points to 4.792 percent, reaching its highest level since January 2025. This surge in yields reflects growing expectations for interest rate hikes across major economies.

Japan's 10-year yield hit 3 percent for the first time since 1996, while British and euro zone yields also reached over-10-year highs. Central banks are bracing for potential interest rate hikes, which could have a negative impact on companies and consumers alike due to increased borrowing costs. The surge in oil prices, which rose to five-week highs, exacerbates inflation worries.

The escalation of U.S. strikes against Iran has heightened fears of a renewed conflict in the Middle East, further stressing energy reserves and driving up fuel prices. Euro zone inflation also surged back above 3 percent in August, largely due to higher energy costs, prompting the European Central Bank to consider a September rate hike.

Market expectations for a 25 basis point rate increase from the Federal Reserve during its upcoming meeting stand at 66.2 percent, up from 39.6 percent a week ago. Wall Street's major stock indexes saw declines, with the Dow Jones Industrial Average falling 0.8 percent, the S&P 500 down 0.7 percent, and the Nasdaq Composite slipping 1 percent.

Seasonal market weakness is also affecting investor sentiment, as September has historically been a month with negative average returns since 1926. Meanwhile, gold prices hit a two-week low as the stronger U.S. dollar and elevated Treasury yields prompted investors to seek safer assets.