A significant sell-off in global bond markets drove US government borrowing costs to levels not seen since 2002, with 10-year Treasury yields reaching 5.34% in frantic trading activity. The decline was fueled by investor concerns about renewed inflation pressures stemming from persistently high oil costs, which analysts expect will prompt central banks worldwide to raise interest rates in the coming months to prevent price increases from becoming entrenched in the economy.
The sell-off extended beyond US markets, with UK government bond yields experiencing notable increases. Thirty-year UK bond yields reached 6% for the first time since 1998 before moderating slightly, while shorter-duration bonds also saw yields rise. The financial stress preceded the chancellor’s first budget announcement later in the month. European stock markets declined sharply in response, with London’s FTSE 100 falling nearly 1.7% in its worst daily performance since May, while Germany’s DAX and France’s CAC 40 fell 1% and 1.6% respectively.
Inflation concerns and government debt issuance dominated investor sentiment despite Wednesday’s inflation data coming in below expectations. Economists noted that traders remained anxious about the Federal Reserve’s potential to maintain higher interest rates for an extended period, driven by US economic strength and wage growth pressures. A buyers’ strike emerged as investors waited for market stability before committing capital, with hedge funds having suffered losses and limited risk appetite to counter the downward momentum.
Oil markets reflected similar tensions, with Brent crude rising 3% to approximately $101 per barrel. While Middle East export flows through the Strait of Hormuz had largely recovered through alternative transportation methods, uncertainty surrounding the Iran conflict and long-term regional stability kept crude prices elevated. French government bonds faced particular selling pressure, with 10-year yields reaching 4.96%, their highest since 2002, as the spread over German yields widened to its largest level in over a decade.
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