Global Bond Yields Stabilize After Sharp Sell-Off
U.S. Treasury and eurozone bond yields were broadly steady on Friday as markets paused following a sharp sell-off earlier in the week.
The decline in bond prices was driven by concerns that the breakdown of the U.S.-Iran ceasefire could trigger another wave of energy-related inflation.
The yield on the benchmark 10-year U.S. Treasury note edged lower to 4.54%. However, it remained close to a two-month high.
During Wednesday and Thursday, the 10-year yield recorded its largest two-day increase in several months. The move followed heavy military strikes exchanged between Washington and Tehran.
Meanwhile, the two-year U.S. Treasury yield remained near 4.18%. This maturity is closely watched because it is highly sensitive to expectations surrounding Federal Reserve interest rates.
Eurozone Yields Remain Near Recent Highs
In Europe, Germany’s 10-year Bund yield rose slightly to around 3.03%.
The German Bund is widely viewed as the main benchmark for eurozone government bonds. Its yield remained close to a seven-week high after also experiencing a sharp two-day increase earlier in the week.
The rise reflected growing concerns that renewed tensions between the United States and Iran could keep inflation elevated and complicate the outlook for interest rates.
Energy-Driven Inflation Fears Return
The latest escalation has placed the fragile June 17 ceasefire under serious pressure.
The United States reportedly struck Iranian targets, prompting Tehran to retaliate against American assets in Kuwait and Bahrain. These developments quickly unsettled global fixed-income markets.
Bond investors are now assessing whether the renewed conflict could disrupt energy supplies and push inflation higher.
Strait of Hormuz Disruption Lifts Oil Prices
Maritime traffic through the Strait of Hormuz has faced significant disruption, increasing concerns about global oil supplies.
Brent crude moved back toward $78 per barrel as traders priced in the risk of further supply constraints.
Higher oil prices can raise transportation, manufacturing and consumer costs. As a result, the latest surge has already changed short-term inflation expectations.
Central Bank Rate Expectations Come Under Pressure
Before the latest clashes, bond markets had been strengthening on expectations that inflation would continue to slow.
Investors had also anticipated that softer price pressures would allow central banks to maintain a more neutral interest-rate policy.
Those expectations are now being reassessed. A prolonged rise in energy prices could keep inflation above target and reduce the likelihood of interest-rate cuts in the near term.
