Key facts
- Global bond yields surged and stock markets slumped on Friday as soaring oil prices inflamed inflation risks.
- Brent crude futures hit a four-month high of $109.97 a barrel amid supply concerns.
- US 10-year Treasury yields neared 5%, the highest since late 2023.
- Markets are pricing in a 72% chance of a Fed hike next week.
- Asian bonds extended the global selloff, with Australia's three-year government bond yields surging 18 basis points to a 15-year high of 5.047%.
Global bond yields surged and stock markets slumped on Friday as soaring oil prices inflamed inflation risks, sending investors scrambling to price in more policy tightening from central banks across the globe.
Brent crude futures surged to a four-month high of $109.97 a barrel, set for about a 13% weekly jump, as increasing attacks along key shipping routes in the Middle East fuel fears of a prolonged disruption to supplies.
With borrowing costs from Tokyo and Sydney to New York and London at multi-decade highs, investors are pricing in the need for interest rate increases to tackle price pressures. The European Central Bank raised rates on Thursday and warned price pressures could prove lasting, while data showing U.S. producer prices increased in August stoked wagers of an imminent rate hike when the Federal Reserve meets next week.
"We're seeing a perfect storm of higher oil prices, more inflation fears, central bank hawkishness and ongoing concerns over fiscal deficits all combining to push global yields higher," said Mansoor Mohi-uddin, chief macro strategist at Bank of Singapore.
Yields on 10-year Treasury notes rose to 4.97% in early Asian hours, trading at their highest levels since late 2023. Asian bonds extended the global selloff, with Australia's three-year government bond yields surging 18 basis points to a 15-year high of 5.047%. Japan's 10-year government bond yields rose 6 bps to 2.97%, with the Bank of Japan widely expected to raise rates to a 31-year high next week and possibly signal faster tightening in the future.
"A soft print and no hike next week should drive a kneejerk move lower in yields. However, it's unlikely to sustain unless oil prices move lower as well," said Prashant Newnaha, senior rates strategist at TD Securities.
Traders are pricing in a 72% chance of a Fed hike next week, up from 49% a week earlier, the CME FedWatch tool showed. The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, hit its highest level since July 2024 at 4.596% on Friday after jumping 12 bps in the previous session.