Global bond yields spike as oil surge stokes inflation fears
Global bond yields hit multi-year highs and Asian stocks tumbled on 11 Sep after Brent crude surged to a four-month high of US$109.97 a barrel, stoking inflation fears. The benchmark 10-year US Treasury yield climbed to 4.9708 per cent, its highest in three years, as markets priced in more central b
SYDNEY: Global bond yields spiked to new highs and sharemarkets 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 climbed to a four-month high of US$109.97 a barrel on Friday after a 6 per cent overnight jump, capping a weekly gain of nearly 13 per cent. Oil flows remained restricted through the Strait of Hormuz as the US and Iran traded attacks, while Iran-aligned Houthis seized control of Yemen's port of Mocha, threatening Saudi oil exports in the Red Sea.
“Maritime traffic through the Bab el-Mandeb is gravely imperiled by the Houthi advances,” said Helima Croft, head of global commodity strategy at RBC Capital Markets, tipping Brent could hit US$121.99 a barrel later this year due to the resumption of a full-blown Saudi-Houthi war.
The benchmark 10-year Treasury yield climbed 2 basis points on Friday to 4.9708 per cent, its highest in three years and just shy of the closely watched 5 per cent level. The 30-year yields scaled another 19-year top of 5.3803 per cent, lifting US mortgage rates and hamstringing the housing market. Two-year yields rose another 2 basis points to 4.5835 per cent after surging 12 bps overnight as markets ramped up bets that the US Federal Reserve will have to raise interest rates this month, currently priced at about 70 per cent probability.
Asian bonds extended the global selloff, with Australia's three-year government bond yields surging 18 bps to a 15-year high of 5.047 per cent. Japan's 10-year government bond yields rose 6 bps to 2.97 per cent as data showed Japan's wholesale inflation stayed elevated to bolster the case for an imminent rate hike from the Bank of Japan.
Analysts at JPMorgan now expect eight of the nine developed-market central banks to hike interest rates by the year end, including the Fed, BOJ, all four central banks in Europe, and the reserve banks of Australia and New Zealand. “The tightening is for now expected to remain shallow, but risks to our forecasts lean in the direction of more action in the face of resilient growth, sticky core inflation, and commodity price pressures,” they said in a note.
The surge in oil prices has raised the stakes for US consumer prices data for August due later in the day, which could make or break the case for a Fed rate hike next week. Asian stocks suffered deep losses, with MSCI's broadest index of Asia-Pacific shares outside Japan losing 1.8 per cent while Japan's Nikkei tumbled 2.8 per cent. Chinese blue-chips fell 1.2 per cent and Hong Kong's Hang Seng dropped 1.5 per cent.
