Global bonds buckle as surging oil prices inflame inflation risks

Global bond yields surged to record highs and stock markets plunged on Friday as rising oil prices heightened concerns about inflation, prompting investors to anticipate increased interest rate hikes from central banks worldwide. Brent crude oil reached a four-month peak of US$109.97 a barrel, following a six percent overnight surge and a weekly gain of nearly 13 percent.

Restrictions on oil shipments through the Strait of Hormuz remained due to ongoing tensions between the U.S. and Iran, while Houthi rebels seized Yemen's key port, threatening vital Saudi oil exports through the Red Sea. Helima Croft, head of global commodity strategy at RBC Capital Markets, warned that Brent could spike to US$121.99 by year-end if the conflict between Saudi Arabia and Houthi rebels escalates further.

The market's growing apprehension about potential protracted conflict fueled a global sell-off. The benchmark 10-year U.S. Treasury yield climbed to 4.9708 percent, its highest level in three years, barely missing the 5 percent mark that had previously signaled a risk of tighter monetary policy. Japan's 30-year bond yields hit a 19-year high of 5.3803 percent, pushing up mortgage rates and dampening the housing market. U.S. mortgage interest rates also rose.

Asian bond markets followed suit, with Australia's three-year government bond yields jumping 18 basis points to a 15-year high of 5.047 percent. Japan's 10-year government bond yields climbed 6 basis points to 2.97 percent, as data revealed persistent wholesale inflation pressures, supporting the case for an imminent rate hike from the Bank of Japan.

Multiple major central banks are expected to raise interest rates by the end of the year, with the U.S. Federal Reserve, European Central Bank, and the reserve banks of Australia and New Zealand among them.