Bond Yields Hit Milestones as Oil Prices Surge Amid Geopolitical Tensions
Market Reactions to Renewed Geopolitical Tensions and Oil Price Surge
A look at the day ahead in European and global markets from Gregor Stuart Hunter
Bond Yields Reach New Highs
Bond yields are hitting new milestones as fighting resumes between the U.S. and Iran and oil prices surge, sending Brent crude above $95 and the yield on the U.S. 10-year Treasury bond to a three-year high.
Escalation Between U.S. and Iran
That's after the U.S. and Iran resumed attacks on each other on Tuesday, with the Pentagon saying it completed a wave of strikes against Islamic Revolutionary Guard Corps targets, and Tehran saying in turn it struck U.S. assets in Jordan and Iraq. It was the first serious exchange of fire since July.
Impact on Global Bond Markets
The resumption of the Middle East conflict pushed the yield on the U.S. 10-year Treasury bond to an intraday high of 4.8122%, its highest level in almost three years, while the 10-year Japanese government bond yield extended a surge that has already taken it to levels not seen in three decades this week.
Challenges for Bond Investors
For bond investors, it's another headache on top of already mounting fiscal concerns. So-called bond vigilantes have been demanding ever-higher compensation to fund governments running large deficits, and a renewed oil shock only adds fuel to the inflation fire, undermining the appeal of fixed-income assets.
Japanese Bond Yields and Global Demand
There is another wrinkle, too. Rising yields in Japan could keep more Japanese money at home, reducing a powerful source of overseas bond demand that has long helped anchor global debt markets.
Central Bank Actions and Market Responses
Bank of Japan's Policy Stance
Adding to pressure on bond markets were comments from Bank of Japan officials ahead of the September 17-18 meeting, with Governor Kazuo Ueda vowing to continue raising rates. Hajime Takata, another board member known for his hawkish views, also called for a faster pace of interest rate hikes.
Other Central Banks and Currency Movements
Meanwhile, other central banks took action on Wednesday to tame cost-of-living pressures. The New Zealand dollar slumped 1% to $0.58375 after a widely-expected 25-basis-point rate hike from the Reserve Bank of New Zealand was coupled with a more dovish statement.
Equity Markets and Futures Performance
Equities have taken fright as financial conditions tighten, with MSCI's broadest index of Asia-Pacific shares outside Japan tumbling 1.7% as South Korea's KOSPI skidded more than 3.5%. The Nikkei 225 was down 2.7% while S&P 500 e-mini futures edged 0.1% lower.
In early European trades, pan-region futures were down 0.4%, German DAX futures were 0.5% lower and FTSE futures slid 0.5%.
Key Developments to Watch
Company Earnings
CD Projekt Red, Broadcom, Snowflake, Hewlett Packard Enterprise
Economic Events
France: Budget Balance for July
(Reporting by Gregor Stuart HunterEditing by Shri Navaratnam)
