Key facts
- The 10-year U.S. Treasury yield is nearing the 5% level.
- Australian bond yields hit 15-year highs.
- Brent crude oil is up over 50% from July lows.
- Traders are pricing in a 70% probability of a Federal Reserve rate hike next week.
- U.S. CPI data for August is expected to show a 0.2% monthly rise in the core measure.
Bond markets globally are signaling higher borrowing costs as inflation fears intensify, exacerbated by rising oil prices and geopolitical tensions. The benchmark 10-year U.S. Treasury yield reached a three-year high of 4.9708% in Asian trading, approaching the critical 5% level that could negatively impact stock markets and slow economic growth.
Australian bond yields hit 15-year highs, New Zealand swap rates surged 22 basis points, and Japanese government bond yields rose 9 basis points as traders anticipate central bank rate hikes to curb inflation. Brent crude oil has climbed above $108 a barrel, a more than 50% increase from its July lows, driven by concerns over the Strait of Hormuz and the potential Houthi control of the Bab al-Mandab Strait, which could disrupt shipping routes and further inflate oil prices.
Asian shares were down significantly, with Japan's Nikkei and South Korea's KOSPI falling over 2%. European bourses were expected to open more calmly, having already seen multi-decade high yields. Wall Street futures showed little change ahead of the U.S. CPI data release, which is seen as crucial for Federal Reserve policy decisions. Forecasts center on a 0.2% monthly rise in the core CPI measure, with futures implying a 70% probability of a rate hike by the Fed next Wednesday. A higher-than-expected CPI result could push 10-year Treasury yields above 5%.