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Global Bond Yields Hold Steady as Hormuz Closure Raises Inflation Risks

Global bond yields remained broadly stable on Monday as investors assessed two opposing forces.

On one side, government debt continued to attract safe-haven demand because of rising geopolitical tensions in the Middle East. On the other, higher oil prices increased concerns that inflation could remain elevated for longer.

As a result, both Eurozone government bond yields and U.S. Treasury yields stayed close to multi-week highs.

German Bond Yields Remain Near Recent Highs

Germany’s 10-year Bund yield, which serves as the main benchmark for the Eurozone bond market, held near 3.05%.

The yield preserved most of its recent increase as investors remained cautious about the inflation outlook.

Meanwhile, Germany’s two-year bond yield rose to around 2.68%. This shorter-term yield is more sensitive to expectations for European Central Bank interest-rate policy.

U.S. Treasury Yields Trade Steadily

U.S. Treasury yields also showed limited movement.

The two-year Treasury yield remained close to 4.22%. This maturity often moves in line with expectations for Federal Reserve interest rates.

At the same time, the benchmark 10-year U.S. Treasury yield held near 4.57%.

Both yields stayed close to their highest levels in more than a month.

The elevated levels reflected concerns that a prolonged energy shock could keep inflation persistent and limit the ability of central banks to reduce borrowing costs.

Strait of Hormuz Closure Shakes Energy Markets

Bond investors were forced to assess a major geopolitical development after Iran announced that the Strait of Hormuz had been closed until further notice.

The waterway is one of the world’s most important oil transportation routes.

Any prolonged disruption could restrict global energy supplies and lead to further increases in crude oil prices.

This risk complicated the usual market reaction to geopolitical uncertainty.

Government bonds often rally during periods of conflict because investors seek safer assets. However, the inflation threat from higher energy prices prevented yields from falling significantly.

Brent Crude Surge Revives Inflation Concerns

Brent crude prices initially jumped by around 4.4% following the announcement.

The gains later accelerated, with Brent rising above $81 per barrel and advancing by more than 7% during the session.

The sharp increase brought inflation expectations back into focus.

Higher oil prices can raise transportation, manufacturing, and household energy costs. These pressures may eventually feed into broader consumer prices.

Therefore, investors are now considering whether the Gulf crisis could delay future interest-rate cuts in both Europe and the United States.

Eurozone Bonds Recover After Sharp Sell-Off

Monday’s relatively stable trading followed a difficult week for fixed-income markets.

Eurozone government bonds recorded their steepest sell-off in more than a month as diplomatic efforts in the region weakened and geopolitical risks increased.

Germany’s 10-year bond yield posted its largest weekly rise in five weeks.

Money markets also increased bets that the European Central Bank could pause its rate-cutting cycle if the energy crisis creates lasting inflation pressure.

ECB Policy Outlook Comes Into Focus

Investors are closely watching upcoming comments from European Central Bank officials.

ECB Executive Board member Isabel Schnabel is scheduled to speak later in the day.

Her remarks could provide important guidance about the central bank’s view of inflation and interest rates.

Schnabel is widely regarded as one of the more hawkish members of the ECB Governing Council.

Therefore, any warning about higher core inflation caused by the Gulf conflict could trigger another move in European bond yields.

Federal Reserve Speakers Could Move U.S. Yields

The Federal Reserve will also remain in focus.

Fed Governor Michelle Bowman is expected to speak later in the session.

Because Bowman is considered a policy hawk, investors will listen closely for any comments about inflation, energy prices, or the future path of U.S. interest rates.

Her remarks could influence short-term Treasury yields and expectations for Federal Reserve policy.

U.S. Inflation Data and Budget Figures Awaited

The U.S. Treasury is also scheduled to release the federal budget balance for June.

The data will provide investors with a fresh view of the country’s fiscal position.

Markets are also preparing for Federal Reserve Chair Kevin Warsh’s congressional testimony and the upcoming June U.S. Consumer Price Index report.

These events could determine the next major direction for global bond markets.

For now, yields remain caught between safe-haven demand and concerns that rising oil prices could create a new wave of inflation.