Global Bond Selloff Intensifies Amid U.S.-Iran Escalation

U.S. Treasury yields rose sharply on Tuesday, with the 10-year yield reaching its highest level since January 14, 2025, as renewed military tensions in the Middle East increased concerns about inflation, energy prices and government borrowing costs. The 10-year Treasury yield, a key benchmark for mortgages, auto loans and credit-card debt, increased by more than 3 basis points to 4.792%. The 30-year Treasury yield rose more than 1 basis point to 5.266%, while the 2-year yield climbed more than 4 basis points to 4.398%. Because Treasury prices and yields move inversely, the increase indicated continued selling pressure in the bond market. The market reaction followed reports that U.S. Central Command had begun strikes against Islamic Revolutionary Guard Corps targets in Iran. Earlier U.S. strikes and an attack by unidentified projectiles on a tanker near Oman and the Strait of Hormuz added to uncertainty about the conflict and the possibility of disruptions to global energy supplies. Oil prices consequently jumped, with West Texas Intermediate settling 5.2% higher at $90.22 per barrel and Brent crude rising 4.6% to $94.65. Ulrike Hoffmann-Burchardi of UBS said inflation concerns remained elevated because there was no clear route to reopening the Strait after six months of war. She also cited uncertainty surrounding Federal Reserve policy, fiscal pressures and increased debt issuance linked to artificial-intelligence investment. These factors, she said, were likely to keep bond-market volatility high in the near term. Investors were also assessing the conclusion of the G20 finance ministers’ meeting in Asheville, North Carolina, and new U.S. economic data. The August ISM Manufacturing Index fell to 54.6 from 55.3 in July, slightly below economists’ expectations, while July job openings were approximately in line with forecasts. Markets were awaiting the August nonfarm payrolls report expected Friday.

Government bond yields rose sharply across the United States, Japan, the United Kingdom and Germany on Tuesday as renewed military conflict between the U.S. and Iran pushed energy prices higher and revived concerns about inflation. The U.S. 10-year Treasury yield climbed three basis points to 4.788%, its highest level in 20 months. Japan’s 10-year government bond yield increased more than six basis points to 3%, a level not seen since 1996, while its two-year yield reached a 31-year high of 1.81%. British borrowing costs also surged. The 10-year gilt yield rose more than nine basis points to 5.2341%, its highest level since June 2008, and the 30-year gilt yield reached 5.8856%, its highest since March 1998. German and French government bond yields rose as well, with Germany’s 10-year bund yield reaching a new 52-week high. The market reaction followed retaliatory U.S. and Iranian strikes near the Strait of Hormuz, which drove crude oil prices higher. Brent crude rose about 2.2% to $92.38 per barrel, while West Texas Intermediate gained 2.61% to $88.05. Higher energy prices have renewed fears that inflation could remain elevated, increasing pressure on government debt markets. U.S. Treasury Secretary Scott Bessent defended the performance of the U.S. bond market, while Standard Chartered strategist Steve Englander argued that yields remain under pressure because of persistent fiscal deficits, the prolonged conflict and a Supreme Court tariff ruling that reduced expected tariff revenue. In the U.K., rising yields coincided with reports that Prime Minister Andy Burnham may pursue legislation making it easier to bring struggling utilities into public ownership. British bonds were also catching up with global markets after a public holiday.

Government bond yields rose sharply across the United States, Japan, the United Kingdom and Germany on Tuesday as renewed military conflict between the U.S. and Iran pushed energy prices higher and revived concerns about inflation. The U.S. 10-year Treasury yield climbed three basis points to 4.788%, its highest level in 20 months. Japan’s 10-year government bond yield increased more than six basis points to 3%, a level not seen since 1996, while its two-year yield reached a 31-year high of 1.81%. British borrowing costs also surged. The 10-year gilt yield rose more than nine basis points to 5.2341%, its highest level since June 2008, and the 30-year gilt yield reached 5.8856%, its highest since March 1998. German and French government bond yields rose as well, with Germany’s 10-year bund yield reaching a new 52-week high. The market reaction followed retaliatory U.S. and Iranian strikes near the Strait of Hormuz, which drove crude oil prices higher. Brent crude rose about 2.2% to $92.38 per barrel, while West Texas Intermediate gained 2.61% to $88.05. Higher energy prices have renewed fears that inflation could remain elevated, increasing pressure on government debt markets. U.S. Treasury Secretary Scott Bessent defended the performance of the U.S. bond market, while Standard Chartered strategist Steve Englander argued that yields remain under pressure because of persistent fiscal deficits, the prolonged conflict and a Supreme Court tariff ruling that reduced expected tariff revenue. In the U.K., rising yields coincided with reports that Prime Minister Andy Burnham may pursue legislation making it easier to bring struggling utilities into public ownership. British bonds were also catching up with global markets after a public holiday.

The article reports that a global bond selloff intensified after the United States launched fresh attacks on Iranian targets. Financial markets reacted negatively to the escalation: oil prices increased, stock markets declined, and bond yields rose sharply. Japan’s 10-year government bond yield reached 3%, its highest level since 1996, highlighting the scale of the move in sovereign debt markets. The market turbulence is linked to two broader concerns. First, investors are increasingly worried that higher energy prices could fuel inflation, making it more difficult for central banks to reduce interest rates or maintain accommodative monetary policies. Second, rising government debt is adding to concerns about the sustainability of public finances and the supply of government bonds. The article notes that US government debt has exceeded $40 trillion, a development that may contribute to upward pressure on yields as investors demand greater compensation for holding debt. Inflationary pressures are also visible in the eurozone. In August, inflation in the single-currency area rose to its highest level in three years, driven by higher energy prices. This creates an additional challenge for policymakers, who must balance inflation control against the risks that elevated borrowing costs pose to economic growth and government finances. Overall, the report presents the selloff as the result of both immediate geopolitical risk stemming from the US-Iran conflict and persistent economic concerns involving inflation, interest rates, and mounting sovereign debt.

Japan’s 10-year government bond yield climbed above 3% on Tuesday, reaching its highest level since 1996 as investors assessed mounting fiscal pressures and the possibility of another Bank of Japan interest-rate increase. The rise came after U.S. Treasury Secretary Scott Bessent indicated that Washington expects Japan’s government and central bank to take steps that would strengthen the yen, including potentially raising interest rates. The yen weakened past 160 per dollar for a third consecutive session, a level that markets view as increasing the likelihood of renewed Japanese currency intervention. Japan and the United States carried out a rare joint intervention in late July, but the yen has since given back much of its recovery. Japanese Finance Minister Satsuki Katayama said the two countries would continue coordinating to promote orderly currency movements and remained prepared to respond to disorderly market conditions. The yen’s prolonged decline has increased Japan’s import costs and added to consumer-price pressures. U.S. officials are also concerned that Japan, the largest foreign holder of U.S. government debt, could sell substantial amounts of Treasury securities to finance intervention, potentially worsening pressure on global bond markets and destabilizing the dollar. Analysts said Tuesday’s bond-market move reflected rising expectations of a Bank of Japan rate hike in September. Takuji Okubo of Japan Macro Advisors said investors may also be raising their estimate of the central bank’s eventual policy rate from 1.5% to 1.75% or higher. Although a 3% 10-year yield is high by Japan’s historical standards, Okubo said it could represent another step away from deflation and toward a more normal environment of sustained 2% inflation.