Bond Market Bloodbath: Global Selloff Intensifies

Global Bond Market Experiences Significant Selloff

The global bond market concluded a challenging week on Friday, May 15, with a widespread selloff driven by increasing evidence of economic damage from the ongoing Iran war. This development has prompted investors to anticipate faster interest rate hikes and a slowdown in economic growth.

U.S. Treasury yields reached their highest levels in approximately one year, with benchmark 10-year Treasury notes yielding 4.53%, an increase of 7.3 basis points (bps) on the day.

This rise reflects market expectations that the Federal Reserve may need to raise rates to counter inflationary pressures stemming from energy shocks related to the Iran war. European bond markets also experienced pressure, with Italian 10-year yields surging almost 9 bps to around 3.87%, and benchmark German Bund yields rising nearly 6 bps to approximately 3.11%.

Japanese bond yields also hit record highs.

Inflation data released this week indicated that consumers and businesses are experiencing significant price increases, largely attributed to the war's impact on crude oil prices, which have risen by over 50%. Two-year yields, highly sensitive to inflation and interest rate expectations, saw the sharpest increases, while longer-dated bond yields also began to rise, signaling investor concerns about the prolonged effects of price shocks.

Analysts suggest that higher deficits, alongside inflation, will be a key focus, potentially leading to government support measures for fuel subsidies in the coming months and a steepening bias in government bond curves.