Global bond sell-off deepens on inflation concerns
LONDON: A global bond sell-off deepened on Tuesday, pushing government borrowing costs higher and equities lower as investors worried that energy-driven inflation could force central banks to raise interest rates.
A global bond sell-off intensified on Tuesday, driving government borrowing costs up and equities down as investors fretted over the prospect of central banks raising interest rates to combat energy-fueled inflation. The Middle East conflict between the United States and Iran triggered a sharp rise in oil prices, exacerbating concerns that tighter monetary policy could hamper economic growth.
The 30-year UK government bond rate hit a 20-year high, while the 10-year yield surged to levels not seen since the 2007-08 financial crisis. Japan's 10-year bond yield climbed to a 30-year peak of 3%, reflecting apprehensions about planned government spending. The 30-year US Treasury bond yield stood at 5.27%, nearing the level last observed in 2007, and the 10-year yield reached its highest since January 2025.
This sell-off affected bond markets worldwide, according to Deutsche Bank's Jim Reid, who attributed it to the Middle East escalation involving the US and Iran for the first time since late July. European stocks plummeted, with Frankfurt down more than 1% and London falling as markets reopened after a public holiday. Eurozone inflation reached a three-year high of 3.3% in August, reinforcing expectations of an imminent European Central Bank rate hike.
Oil prices climbed around 2% after the US-Iran exchange of fire, and US President Donald Trump vowed to punish Iran severely. With the conflict seemingly stalled, Tehran maintaining the Hormuz strait closed and Washington imposing a counter-blockade on Iranian ports, supply concerns resurfaced. Susannah Streeter, Wealth Club's chief investment strategist, noted that traders were eagerly anticipating vital economic data ahead of the US Federal Reserve's policy meeting on September 16, with bets on rate hikes intensifying following Fed Chair Kevin Warsh's hawkish remarks.
Asian stock markets mirrored Wall Street's decline, with Tokyo, Hong Kong, and Shanghai all slipping lower. Despite concerns over Japan's currency, the yen weakened against the dollar, prompting speculation that the Bank of Japan might tighten monetary policy during its upcoming meeting. In other news, fast-fashion brand Shein saw its shares plummet 10% during its debut trading in Hong Kong, raising US$1.7 billion through an initial public offering, while Taiwanese chipmaker MediaTek experienced a nearly 10% surge after US tech giant Nvidia invested US$3.5 billion in the company.
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