Global bond yields surged to multi-decade highs on Tuesday as fears of war in the Middle East and escalating inflation concerns gripped investors. Japan’s benchmark 10-year government bond yield breached the 3% mark for the first time since 1991, climbing over six basis points to 3.014%. Its two-year bond yield also rose to a 31-year high of 1.81%, according to data from the Bank of Japan.
The yield on the key U.S. 10-year Treasury note climbed to a 20-month high of 3.503% on Tuesday, following a hawkish speech by Federal Reserve Chair Kevin Warsh at Jackson Hole on Friday. Warsh indicated that the central bank has “work to do” if inflation does not cool, signaling a potential rate hike in September.
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Yields on UK 10-year government bonds also rose sharply, jumping over nine basis points to 5.2341%, the highest level since June 2008. The yield on the 30-year UK bond increased by a similar amount to 5.8856%, its highest level in 28 years. Meanwhile, German bond yields also climbed, with the 10-year bund rising over three basis points to a 12-month high, while its two-year bund touched 2.9496%, a more than two-year high.
France’s two-year government bond yield reached its highest level since April 2024, as investors worried about the potential impact of the conflict in the Middle East on energy prices and global inflation. Brent crude rose a further 1.5% on Tuesday, trading at $92 a barrel at the time of writing (12.40 GMT), while WTI crude climbed 2% to near $88.
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The recent flare-up between the U.S. and Iran has raised concerns about a wave of increases flowing to mortgage rates, business, and consumer loans. “The calibrated nature of the initial actions suggests neither side is actively seeking a return to sustained conflict, but stalled talks and the strategic importance of keeping the Strait open leave the situation vulnerable to further escalation,” said Rodrigo Catril, a senior FX strategist at National Australia Bank.
Trump is due to meet oil refining executives on Tuesday in a bid to tame soaring U.S. domestic gas prices that have been a political headache for his Republican Party heading into November’s midterm elections. Stocks mostly fell on Tuesday, with traders awaiting the release of key data this month ahead of the Federal Reserve’s policy meeting on September 16.
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Iran Offers Return to June Peace Deal
There were reports of two oil tankers being hit by projectiles on Tuesday, but Iran’s President Masoud Pezeshkian offered a glimmer of hope by pledging to match any U.S. move to return to a June deal aimed at ending their war. Speaking at an international summit in Kyrgyzstan, Pezeshkian said that if the United States returns to the deal, Iran “will immediately take reciprocal action,” according to the Iranian presidency’s website.
However, Pezeshkian warned that a return by the United States to a “policy of pressure and threats” risks derailing diplomatic efforts to end the war. The deal, meant to set the stage for final peace talks, has collapsed as both sides accused each other of violating its terms, AFP reported.
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