Global Bond Markets Suffer Worst Weekly Rout in Months as Iran War-Driven Inflation Pushes US Treasury Yields to One-Year Highs

Global bond markets closed a bruising week on Friday as accelerating inflation — driven by energy price shocks from the ongoing Iran conflict, now into its eleventh week — sent US Treasury yields to their highest levels in around a year. Two-year yields, which are the most sensitive to changes in interest rate expectations, rose most sharply, reflecting traders' bets that the Federal Reserve may need to raise rates to contain price pressures. Longer-dated bond yields have also begun to climb, signalling investor concern about the durability of inflation rather than a short-term spike. Japan's Nikkei fell 1.99% after wholesale inflation data showed price pressures accelerating at the fastest pace in three years, keeping the Bank of Japan on a path towards further rate rises. The dollar posted a 1.3% weekly gain — its strongest in two months — supported by the absence of progress in Gulf negotiations. Crude oil has risen more than 50% since the outbreak of the Iran conflict, and consumer and business surveys indicate that those energy costs are now feeding visibly into broader price levels. European equity markets, which had enjoyed a brief rally earlier in the week following the Moody's downgrade shock, gave back gains as the inflation narrative reasserted itself. UK gilt markets are also under pressure, with traders recalibrating rate expectations for the Bank of England in light of the global repricing.

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