(Bloomberg) — A selloff in global bonds extended as the deadlock over the Iran war drove oil prices higher, fueling inflation concerns and raising bets that central banks will need to keep tightening policy.
Treasuries declined across the curve with the 30-year yield rising to the highest in almost three years on investor fears over accelerating inflation. Japan’s 10-year yields jumped 10 basis points to levels last seen in 1996, while the nation’s 30-year yield surged 20 basis points to the highest since its 1999 debut. Bonds also dropped in emerging economies such as Indonesia and India.
As bond yields surged, stocks extended their slide from record highs, with Asian shares falling 0.7%. Technology shares, however, gained with South Korea erasing earlier losses to rise 1%. Equity-index futures indicated more losses for Europe and the US.
The dollar, the haven of choice during the Middle East conflict, rose for a sixth day. Weighing on sentiment, Brent crude rose 1.5% to about $111 a barrel as efforts to reopen the vital Strait of Hormuz stalled and President Donald Trump warned the “clock is ticking” for Iran to strike a deal.
Monday’s tumult followed a selloff in stocks and bonds Friday as fears grow that the effective closure of the Strait of Hormuz will keep oil prices elevated, fuel inflation and convince central banks to keep interest rates higher. A key test for investors this week will be Nvidia Corp.’s earnings, after months of equities brushing aside mounting macro risks on bets that billions of dollars spent on the AI rollout would drive corporate earnings growth.
“Inflation worries have gripped global bond markets,” said Frederic Neumann, chief Asia economist at HSBC Holdings Plc. “With little prospect of a quick restoration of Gulf energy flows, and manufacturing supply chains signaling a relentless rise in price pressures, inflation across the world is set to push higher in the coming months. That will force the hand of central banks to tighten policy.”
What Bloomberg Strategists Say…
Cross-asset correlations are hitting the sort of intense levels that signal investors are being forced to preserve cash rather than deploy it into wildly uncertain markets. That means the current unified selloff will extend unless and until the primary trigger of elevated bond yields stabilizes or even reverses.
— Andre de Silva, MLIV. For full analysis, click here.
Attention was firmly on the bond market, with a shift in wagers around the Federal Reserve. Traders now see a rate hike as a lock by March, underscoring how the Iran war has flipped the bond-market narrative on its head since late February, when two quarter-point cuts were expected for 2026.
The Fed needs to catch up with bond markets or risk losing control of borrowing costs as investors grow increasingly worried about inflation, according to Yardeni Research.
If the Fed fails to remove its easing bias, “investors will conclude that the central bank is falling behind the inflation curve and will demand a higher inflation risk premium,” wrote Ed Yardeni, president and chief investment strategist. “We expect the Fed to hold rates unchanged at the June meeting and shift to a tightening policy stance.”
The lack of progress in talks between the US and Iran kept the focus on the Strait of Hormuz, a critical chokepoint for global energy flows, as disruptions there continued to drive oil prices higher and unsettle markets.
Washington offered “no tangible concessions,” while seeking “to obtain concessions that it failed to obtain during the war, which will lead to an impasse in the negotiations,” said Iran’s semi-official Mehr news agency. Meantime, a drone attack sparked a fire at a United Arab Emirates nuclear plant, highlighting the risks to the fragile ceasefire.
Finance ministers of the Group-of-Seven are set to discuss the debt selloff when they meet this week, though how they can ease pressure remains to be seen.
Elsewhere, grain futures in Chicago jumped on Monday after the White House outlined an additional commitment by China to buy US farm goods, stoking hopes that crop exports beyond soybeans could pick up.
Shares in Shanghai edged lower after China’s growth slowed across the board in April with investment resuming declines while retail sales and industrial output fell short of forecasts.
The pound was steady after Wes Streeting said he would take part in any leadership contest to replace Keir Starmer and called for Britain to rejoin the European Union. The declaration follows Manchester Mayor Andy Burnham who announced he intends to run for parliament, opening a pathway to also challenge Starmer, which caused a rout in gilts last week in fears of possible expansionary fiscal policy.
Amid the rising inflation and the continued stalemate in Iran, one key issue for traders this week will be the Nvidia Corp. earnings. The AI bellwether will announce its results after more than 80% of the S&P 500 companies reported earnings that beat estimates, according to Bloomberg Data.
“Rising inflation data across major economies have been the main reason why equities have been crawling back a bit, while long yields are in general up,” said Anna Wu, a cross-asset strategist at Van Eck. Any weakness in Nvidia’s earnings “could weigh on tech names and broader market.”
Corporate News:
Ryanair Holdings Plc warned of rising costs this year if unhedged jet fuel prices remain at current levels, as the budget carrier faces higher bills for fuel, crew and aircraft maintenance. Samsung Electronics Co.’s shares jumped after company management entered make-or-break wage negotiations with its largest labor union aimed at averting a strike that could disrupt operations at the world’s biggest memory chipmaker. Anthropic has agreed to brief members of the Financial Stability Board on its AI model Mythos, the Financial Times reported. The company will brief on vulnerabilities in the global financial system’s cyber defenses that Mythos has identified. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.6% as of 6:51 a.m. London time Nasdaq 100 futures fell 0.6% The MSCI Asia Pacific Index fell 0.8% The MSCI Emerging Markets Index fell 0.5% Japan’s Topix fell 0.8% Australia’s S&P/ASX 200 fell 1.4% Hong Kong’s Hang Seng fell 1.2% The Shanghai Composite was little changed Euro Stoxx 50 futures fell 0.9% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1621 The Japanese yen fell 0.1% to 158.95 per dollar The offshore yuan was little changed at 6.8144 per dollar The British pound was little changed at $1.3324 Cryptocurrencies
Bitcoin fell 1.7% to $76,901.96 Ether fell 3.2% to $2,119.08 Bonds
The yield on 10-year Treasuries advanced three basis points to 4.62% Japan’s 10-year yield advanced five basis points to 2.750% Australia’s 10-year yield advanced five basis points to 5.12% Commodities
Spot gold was little changed West Texas Intermediate crude rose 1.8% to $107.29 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Aya Wagatsuma, Winnie Hsu and Mia Glass.
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