Global bond rout deepens as inflation fears trigger rate-hike bets
SINGAPORE – Global government bond markets experienced extended losses on Monday, May 18, as rising energy prices fueled inflation concerns and prompted investors to anticipate interest rate hikes from central banks worldwide. Bonds from Tokyo to New York tumbled, sending yields higher across major economies.
The selloff was driven by intensifying fears that the ongoing Middle East conflict and its impact on commodity prices could force central banks to tighten monetary policy. Oil prices climbed on Monday, following reports that efforts to end the Iran war had stalled after a drone strike at a nuclear power plant in the United Arab Emirates, according to Yahoo Finance.
Investors are increasingly concerned about the economic fallout from the Middle East war, which has been ongoing for more than two months. Mounting inflationary pressures are prompting a reassessment of the global interest rate outlook.
Longer-dated bonds, which are particularly sensitive to accelerating inflation, led the rout. In the United States, 30-year Treasury yields approached their 2023 peak. The US 10-year yield rose 12 basis points to 4.6%, marking its largest weekly jump since April 2025, Bloomberg Tax reported. Japan’s 30-year yield reached 4% for the first time since an unspecified date, Bloomberg Tax added.
Market expectations for Federal Reserve actions have shifted. MSN reported that markets now indicate up to a 60% chance of a Fed rate hike by early 2027, reversing earlier projections for rate cuts.
Adding to the market pressures, Japan's government is expected to issue fresh debt. This new issuance is planned as part of funding for an extra budget designed to mitigate the economic impact of the war, further straining the nation's government finances, Yahoo Finance reported.