Ankara: Global bond markets are facing massive selling pressure as the conflict in the Middle East escalates, triggering oil prices to surge and reigniting inflation fears, while central banks around the world reconsider their dovish policies. Following the joint US and Israeli military strikes on Iran, the situation further escalated with Tehran's retaliation by targeting US bases in neighboring countries.
According to Anadolu Agency, Brig. Gen. Ebrahim Jabbari, a senior adviser to Iran's Revolutionary Guard Corps commander-in-chief, announced the closure of the Strait of Hormuz on March 2 following the US and Israeli military strikes on Feb. 28, stating that any vessel or oil tanker traversing the waterway would be targeted. In light of these developments, the price of Brent crude oil rose to $84.30 per barrel, its highest level since July 2024, threatening to reverse the global disinflation trend.
The Federal Reserve is widely expected to delay its first cut of the year until July. Minneapolis Fed President Neel Kashkari mentioned that geopolitical uncertainty is complicating rate estimates, while Kansas City Fed President Jeff Schmid warned against complacency, noting that inflation has remained above the target for nearly half a decade. Meanwhile, the US 10-year bond yield rose from a low of 3.92% on Monday to 4.12% on Tuesday, while settling at 4.06% on Wednesday. The US 2-year bond yield climbed to 3.61% on Tuesday before settling at 3.51% on Wednesday.
Despite inflation in Europe falling below the 2% target of the European Central Bank, the latest data showed an overall increase. The eurozone's annual inflation rose from 1.7% in January to 1.9% in February year-over-year and 0.7% month-over-month. Germany and France's 10-year yields reached two-month highs of 2.81% and 3.42%, respectively, while the UK's 10-year yield climbed to 4.55%, its highest since early February.
In Asia, inflationary pressures persist in Japan, and the Bank of Japan is expected to hike rates in July. Japan's 10-year yield peaked at 2.13% before stabilizing at 2.11%, while the country's 20-year and 30-year yields reached 2.96% and 3.36%, respectively. The People's Bank of China is expected to continue its dovish policies, which has limited the selling pressure on Chinese bonds compared to other markets. China's 10-year bond yield stood at 1.8%.
Sant Manukyan, deputy general manager at Trkiye-based IS Investment, told Anadolu that bond yields have increased due to inflation concerns over rising oil prices. Manukyan stated that the rise in the US dollar stemmed from the desire for liquidity, as investors want to exit their positions and move into cash to hedge against risk. He noted that Europe may start expecting a recession if gas prices continue to rise, putting pressure on the euro and strengthening the US dollar. 'These movements will trigger an exit from risky assets in general,' he said. 'The sales even in gold, which is deemed a safe haven in wartime, suggest that the need for US dollar liquidity is higher or could be higher.'