Key facts
- The 10-year U.S. Treasury yield exceeded 4.75%, its highest level since January 2023.
- Oil prices surged nearly 3%, with Brent crude reaching $90.62 per barrel.
- Asian shares were mixed, while European and U.S. stock markets declined.
- Fed Chair Kevin Warsh's comments reinforced expectations of a potential interest rate hike.
- Bond yields rose across major economies, including France, Germany, and Japan.
Global bond markets experienced a significant selloff, pushing the benchmark 10-year U.S. Treasury yield above 4.75% for the first time since January 2023. This rise, occurring alongside escalating U.S.-Iran tensions and oil prices climbing back above $90 a barrel, weighed on stock markets worldwide. Asian shares were mixed, with some declining due to the geopolitical situation and expected U.S. rate hikes, while European markets fell and Wall Street futures indicated a negative open.
Federal Reserve Chair Kevin Warsh's recent comments have reinforced expectations for a potential interest rate hike to combat inflation, contributing to the pressure on bond yields. His speech affirmed commitment to the Fed's 2% inflation target and indicated a willingness to use policy rates if necessary. This has bought him some breathing room, but he now faces pressure to demonstrate he can follow through.
The bond selloff was not confined to the U.S.; French and German yields hit their highest levels since 2008 and 2011 respectively, while Japanese yields reached multi-decade highs. Investors appear to be selling bonds for reasons related to both policy credibility and fiscal concerns.
Separately, debate is intensifying around China's exchange rate, with estimates suggesting the yuan is significantly undervalued. The potential for a coordinated agreement to drive the yuan higher is being discussed, particularly in light of China's large trade surplus and ongoing trade tensions with the U.S.